Micron: We Anticipate a Strong Rebound in Coming Years, but We See It Fully Baked Into Share Price

We maintained our $70 fair value estimate for shares of no-moat Micron MU after revisiting our moat and valuation assumptions. We’ve raised our fiscal 2024 and fiscal 2025 revenue forecasts to reflect an aggressive rebound from the precipitous memory downturn in fiscal 2023, and we model revenue growth tapering to a midcycle level in the midsingle digits thereafter. We’ve also raised our midcycle margin expectations, with midcycle non-GAAP gross margin modestly above 40% and non-GAAP operating margins reaching 30%. We still see shares as fairly valued.

We see Micron Technology as a strong supplier of memory chips, but don’t believe the firm holds an economic moat. Micron benefits from large scale, being the fifth-largest chipmaker in the world, but we don’t see enough scale to generate consistent economic profits. Micron holds a third place market share in dynamic random access memory, or DRAM, chips and a fifth-place market share in not-and, or NAND, flash chips. We view both the DRAM and NAND markets as highly cyclical, and expect Micron to thrive in periods of strong demand and pricing, but to be vulnerable to downcycles that compress shipments, prices, and profits.

While we foresee cyclicality to continue, we see long-term growth for both the DRAM and NAND markets over the course of cycles. We expect data centers, mobile phones, and cars to require greater amounts of memory content, driven by secular trends towards artificial intelligence, 5G, and autonomous vehicles. In our view, Micron should be able to benefit from this growth with its scale, despite cyclical effects in the short-term. We also like Micron’s shareholder distributions and view its balance sheet as good for a cyclical memory chipmaker.