The Zhitong Finance App learned that in the latest research report, Citi indicated that the bank invited Micron Technology (MU.US) Chief Financial Officer Mark Murphy and Investor Relations Director Jeff Grattan to attend the investor conference in Los Angeles. Overall, the bank believes that as demand for hyperscalers (hyperscalers) driven by artificial intelligence (AI) continues to accelerate, the market has underestimated the extent to which DRAM/HBM supply may continue to be tight. At the same time, as the benefits of process downsizing continue to dwindle, memory manufacturers must rely on a long cycle of new (greenfield) capacity expansion. As a result, the supply of HBM and advanced memory is likely to continue to be tight until 2027 and 2028.
Here are the main highlights of Citi's summary.
AI Requirements:
Customers continue to underestimate AI needs. The return on AI investment (payback) is already very clear, and the overall credit status/production capacity situation is still strong. The incentive to use higher capacity and higher performance memory gives it a favorable differentiating advantage in terms of cost per token.
According to Citi, supply is the key factor in market undervaluation: the increase in density due to process node conversion is decreasing (1-delta is about 25%, compared to 30-40% for 1-gamma and previous nodes). HBM's conversion ratio takes up wafer production capacity, while the DRAM bit growth rate is only around 20%. Really relieving supply pressure requires building a new fab, which takes a long time, and cleanroom space is a limiting factor. Micron Technology's spending on construction is approaching 50% of capital expenditure.
Visibility:
Micron expects the DRAM supply and demand environment in 2027 and 2028 to be more tight than 2026. Strategic Client Agreements (SCA) account for 35% of sales by 2030, and the company aims to increase this ratio to approximately 50%. Approximately 75% of the non-SCA business has been contracted until 2027.
HBM:
Next year, HBM's profit margin will be narrower than DRAM, and it is expected that HBM's growth rate will exceed that of the entire DRAM market. Despecing is a scarcity of supply, which allocates available DRAM to more accelerators.
Cash and capital:
Micron has generated unusually strong cash flow, generating approximately $33 billion in free cash flow in the quarter ending August, and free cash flow will increase further for the quarter ending November. Management said AI-driven demand and higher-value products (HBM, data center DRAM, SSD) are supporting significantly stronger cash generation capabilities than previous memory cycles.
Although Micron Technology expects a significant increase in capital expenditure in FY2027 (Citi anticipates more than $50 billion) to support technological process transformation and manufacturing expansion, the company still expects to generate significant free cash flow due to the favorable industry background.
Micron recently approved a record $35.2 billion share repurchase program. As the restrictions of the Chip Act expire in December 2026, the company will significantly increase shareholder returns starting in December 2026. This buyback authorization highlights management's confidence that the company will continue to generate strong free cash flow in an environment where DRAM supply and demand are structurally tight from 2027 to 2028.
Valuation:
Citi gave Micron Technology a “buy” rating, and the target price was set at $1,300, which is about 8 times the expected earnings per share (EPS) in 2027. This target price has room for an increase of about 32% from the stock's closing price of $983.23 on Wednesday. Given the current unprecedented pricing environment and the advent of strategic customer agreements (SCA), this valuation is a slight premium over Micron Technology's trading range during the previous DRAM upward cycle.