Citigroup has significantly lowered its price target for Micron Technology by 17%, citing a recent notable softening in DDR5 DRAM spot prices. However, the firm maintained its Buy rating and kept all profit forecasts unchanged, asserting that the long-term logic of AI-driven storage demand remains fundamentally intact. According to the report, Citigroup analyst Atif Malik reduced the price target for Micron from $510 to $425 in a research note dated March 31. As of the close on March 30, Micron's stock price was $321.80, implying a potential upside of approximately 32% to the new target. Data from the report indicates that spot prices for mainstream 16GB DDR5 DRAM have recently fallen by about 6%. This decline is primarily attributed to market concerns surrounding Google's TurboQuant technology, which is perceived as potentially reducing memory consumption for AI inference, thereby sparking worries about the future outlook for storage demand. Micron and its peers have begun negotiations with hyperscale cloud computing providers for strategic long-term agreements spanning 3 to 5 years. The framework of these agreements includes locking in base purchase volumes, prepayment arrangements, and quarterly price adjustment mechanisms based on market conditions, which are expected to provide effective support for contract prices.
Pressure on DRAM Spot Prices Directly Triggers Target Price Revision
Since the beginning of the year, mainstream DRAM spot prices have generally trended downwards, with 16GB DDR5 products experiencing a particularly pronounced decline, recently falling by approximately 6%. Based on this, the Citigroup analyst adjusted the valuation benchmark for Micron downward from 6 times to 5 times cycle-bottom price-to-earnings ratio. Using the projected peak earnings per share for 2027 as a basis, the new target price of $425 was derived, which aligns with the historical bottom range of 5 to 6 times P/E observed during previous DRAM upcycles. Notably, the firm maintained all its financial forecasts for Micron unchanged: the core EPS forecast for fiscal year 2026 is $58.46, and for fiscal year 2027 it is $94.55. At the current stock price, this implies a forward P/E ratio of about 5.5 times for FY2026 and 3.4 times for FY2027, positioning the stock at historically relatively low valuation levels.
Long-Term Agreements Provide Structural Support for Contract Prices
Despite pressure in the spot market, the downside risks for contract prices are considered relatively manageable. The report notes that Micron and other memory companies are engaged in negotiations with hyperscale cloud providers for 3 to 5-year strategic long-term agreements. The terms cover locked-in base purchase volumes, prepayment mechanisms, and quarterly price adjustments linked to market conditions. This framework of long-term agreements is expected to build structural support for contract prices. Given that approximately 79% of Micron's revenue comes from its DRAM business, the trajectory of contract prices is crucial for its earnings visibility.
TurboQuant Impact Seen as Similar to DeepSeek; Long-Term Demand May Increase
Addressing the primary catalyst for the recent spot price decline, the report included a specific assessment of TurboQuant technology. TurboQuant is a model compression technology developed by Google's research team. It optimizes Key-Value Cache calculations through novel quantization methods, including PolarQuant technology and the QJL algorithm, thereby reducing memory usage during AI inference processes. The report suggests that the impact of TurboQuant on storage demand is similar to the previous DeepSeek incident: superficially, efficiency-improving technologies lower the computational and memory costs per AI inference task. However, lower usage costs are likely to spur an increase in application volume, ultimately boosting the overall demand for total computing power and memory. Historically, cheaper technology has often led to increased demand for more technology, and the AI field is no exception. Consequently, the firm views the recent pullback in spot prices as reflecting short-term market sentiment fluctuations rather than a trend reversal in AI-related storage demand.
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