Investors have become more focused on the durability of memory-chip demand, but there are reasons to be optimistic on that front, a UBS analyst says
Micron's stock was down on Wednesday, but a UBS analyst is upbeat about its potential.
There's no question that Micron Technology is benefiting from robust artificial-intelligence spending. What investors want to know now is how long the good times can continue.
With that dominating the conversation, Micron's stock (MU) "remains a battleground between momentum and duration," UBS analyst Timothy Arcuri said. But with the gap between memory-chip supply and demand expected to continue widening into next year, he's feeling upbeat about the company's fundamental position.
Arcuri expects Micron to be able to fulfill about 60% of demand for dynamic random-access memory next year, while bit demand for server double-data rate memory will likely grow about 80% in that time frame. Additionally, bit demand for server and storage solid-state drives could more than double in 2027, Arcuri said in a Wednesday note to clients. Bits refer to the smallest unit of data being stored.
As Micron's long-term supply agreements with customers start to "mute upside" to estimates for its revenue, Arcuri said investors should be focused "on durability of demand and especially capital return."
After receiving funding from the 2022 Chips and Science Act, Micron was temporarily unable to buy back shares. Those restrictions are set to lift in December, and Arcuri said he expects quarterly repurchases to kick off in the $20 billion range in the February quarter of next year. They could then ramp up to between $40 billion and $50 billion a quarter.
Micron reports earnings next week, but the company "probably doesn't want to front-run itself" and will likely not say much about share buybacks on its earnings call, he said.
The stock was down 2.4% Wednesday afternoon but has soared 275% so far this year.
Wolfe Research analyst Chris Caso shared a similar view, saying that Micron's long-term agreements have given investors "more confidence on the duration of the current upcycle," a reference to the ongoing boom in demand.
In the long run, accelerating growth in Micron's capacity and additional cleanroom space for manufacturing will likely drive most of the company's gains, Caso said in a Wednesday note to clients.
-Britney Nguyen
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