| | | This is a remarkable summary of a MS piece on "why we were wrong about Micron" (taken from a SA comment)--
Why We Changed Our View
1. Revising Our Underestimation of the DRAM Cycle
(1) Previous View
Morgan Stanley previously believed that the DRAM price rebound through summer 2025 was merely temporary and not a sign of structural strength, given weak demand across PCs, mobile, and servers.
Accordingly, we maintained a cautiously neutral (Equal-weight) stance on Micron, expecting only a limited recovery in industry conditions.
(2) What Changed
We now observe double-digit QoQ DRAM price increases occurring without meaningful demand recovery, driven purely by supply tightness.
This suggests a structural supply constraint, not a simple “inventory normalization” phase.
In short, the current price strength cannot be explained by traditional demand models — we recognize that we underestimated the impact of coordinated shipment control among suppliers.
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2. Withdrawing Our Bearish View on HBM (Especially HBM4)
(1) Previous View
We believed Micron was technologically behind in meeting NVIDIA’s HBM4 speed requirement (>9.6Gbps), implying inevitable market share loss and margin pressure in the HBM segment.
(2) What Changed
We now correct that — Micron’s disadvantage has been overstated.
Although its HBM shipments are roughly one quarter behind SK hynix, technical maturity remains strong, and Micron is expected to maintain a low-20% market share in CY26.
While some yield loss may occur as Micron aligns with NVIDIA’s spec demands, this could actually tighten overall HBM supply, helping support industry-wide ASPs.
Moreover, the transition to TSMC base dies for HBM4E may serve as a structural advantage for Micron rather than a risk.
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3. Newly Recognizing the Pricing Leverage Between DDR5 and HBM
In the past, we treated DRAM and HBM as separate markets.
Now, we emphasize that DDR5 price increases serve as direct leverage in HBM price negotiations.
This interlinkage — previously excluded from our models — limits potential downside in HBM pricing and supports gross margin stability.
In other words, the old narrative that “HBM cannibalizes DRAM” has been replaced with a new one: “DRAM sustains HBM.”
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4. Acknowledging Upward Pressure on Earnings Estimates — “The Start of an EPS Revision Cycle”
Driven by recent sharp DDR5/DRAM price hikes and inventory drawdowns, we now see Micron’s quarterly EPS reaching as high as $5 in the near term.
Morgan Stanley noted, “We thought just last week…”, implying that even their own estimates from one week ago were overly conservative.
In short, we are correcting an underestimation of both the speed and magnitude of the price uptrend.
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5. Reassessing Valuation — From “Conservative 10x” to “AI Premium 22x”
We have abandoned the previous framework that applied a 10x PER, based on the 2021 peak.
Instead, we now reflect structural growth drivers tied to AI, applying a through-cycle EPS of $10 × 22x multiple, raising our price target accordingly.
This is not a simple re-rating — it represents a fundamental paradigm shift, acknowledging that “AI memory deserves a valuation premium.”
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6. Key Misjudgments We Corrected
1. Viewed DRAM strength as temporary ? Underestimated supply tightness and structural inventory drawdown.
2. Overstated HBM4 competitiveness concerns ? Misjudged Micron’s technological maturity and yield improvement pace.
3. Ignored DRAM–HBM price interdependence ? In reality, rising DDR5 prices strengthen HBM pricing power.
4. Underestimated EPS elasticity ? Micron’s profit ramp-up potential is much higher, even in the near term. yesterday's MS upgrade: |
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