Morgan Stanley: Chip Supply-Demand Imbalance May Persist for Years, Sharply Raises Price Targets for Micron and Western Digital
Claire Weston
Morgan Stanley on June 3 doubled its Micron price target from $520 to $1,050 and raised Western Digital from $1,100 to $1,750, arguing that a memory-chip supply shortage will persist for 2–3 years and both stocks remain undervalued.
A doubled price target — what is Morgan Stanley seeing?
Micron's target goes from $520 to $1,050 — more than a double. Western Digital moves from $1,100 to $1,750.
Both trade at forward 2027 P/E ratios below 10×. This means → at Morgan Stanley's earnings estimates, current prices far understate future profits.
Micron's consensus P/E has already expanded from 4× to 11× since late March. Morgan Stanley sees room for further re-rating.
Why can't memory supply keep up?
The bottleneck is not capital — it is cleanroom capacity and a global shortage of EUV lithography tools (machines that etch chip circuits with extreme-ultraviolet light).
A cleanroom takes years from planning to production; EUV tools are in extremely tight supply worldwide, blocking any rapid expansion.
HBM — high-bandwidth memory, the stacked DRAM built for AI chips — consumes wafers at a high rate, structurally squeezing supply for conventional DRAM. This means → the hotter AI runs, the tighter ordinary memory gets — a self-reinforcing shortage.
Morgan Stanley forecasts Micron's DRAM prices will rise 40% quarter-on-quarter in the May 2026 quarter, then another 15% in August. The imbalance may last 2–3 years.
Where is Micron spending the money?
Capital expenditure is sharply raised: $44 billion forecast for fiscal 2027, $40 billion for fiscal 2028 — well above the Street consensus of $37.6 billion and $36.9 billion.
In plain terms = Micron is building fab capacity at scale, but new output still depends on construction timelines — it will not appear overnight.
Micron's share buyback had been on hold due to restrictions tied to the U.S. CHIPS Act. With those lifted, the bank expects $50 billion in total repurchases across fiscal 2027–2028. This means → profits flow into both expansion and direct shareholder returns.
What supports Western Digital's high target?
Joint-venture partner Kioxia nudged its long-term bit-growth forecast only from 20% to 22%, reflecting persistent weakness in smartphones and PCs.
Yet consumer softness has not dented data-center flash pricing. Morgan Stanley raised Western Digital's 2026 and 2027 EPS estimates by 12% and 24%, respectively.
In plain terms = Western Digital's direct AI exposure is limited, but it earns in the data center, and its historically high free-cash-flow conversion offsets the gap — enough to underpin the valuation.
Content is for reference only, not financial advice.