Key Takeaways
- Micron shares rose after Bank of America’s Vivek Arya kept his Buy rating and $1,550 price target following meetings with Micron’s executives, and SK hynix rose [3%] too.
- Customer deals that now run three to five years give this memory upcycle a better chance of outlasting past booms.
- Analysts expect Micron’s revenue to keep climbing through fiscal 2028, though the long-term deals cover only a little over a third of its sales.
- The stock still trades as if the boom will end soon, and Micron’s December report is the next big test.
Micron Technology (MU) is up 2% this morning after Bank of America semiconductor analyst Vivek Arya met with its executives and came away “incrementally more positive on memory.”
Arya kept his Buy rating and $1,550 price target, 77% above Friday’s close. SK hynix (SKHY) rose 3% too, with cash news of its own.
The contracts keep getting longer
Customer deals for memory now run three to five years, Arya’s note says, where they used to last a year or less. Micron is already discussing supply for 2031.
That matters, because memory has always been boom and bust. Micron’s revenue slid from $30.4 billion in fiscal 2018 to $21.4 billion in fiscal 2020, then halved in fiscal 2023…
The deals commit customers to set volumes, at floor prices that management expects to deliver margins above any past cycle’s peak. Micron has signed 26, covering over 35% of revenue through 2030, and it’s aiming for about half.
Analysts expect revenue to keep climbing, from $133 billion in fiscal 2026 to $319 billion in fiscal 2028…
Nothing in Arya’s note suggests those estimates should come down.
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Cash, and lots of it
Arya also estimates Micron could generate $150 billion to $200 billion of free cash flow a year in 2027 and 2028, well over double fiscal 2026’s $59.0 billion. Its new buyback, up to $35.2 billion, can start on Dec. 9.
SK hynix may hand back some of its own windfall. [Dong-A Ilbo](LINK NEEDED) reported Monday that it plans a special dividend of about ₩16 trillion (about $12 billion) from the sale of its Kioxia stake. SK hynix said in a filing that nothing’s decided, but it’s reviewing ways to return cash and will announce them with its third-quarter results on Oct. 28.
Still priced for a bust
Micron traded at 5.0x forward earnings at Friday’s close, near its 2017 and 2018 readings, just before revenue slid. The market is still pricing this boom to end like the others.
My take: Longer contracts make this upcycle sturdier than the ones before it, and at that multiple, Micron doesn’t need the boom to last forever to look cheap.
The deals cover only a little over a third of sales, though, so if the new fabs coming in 2027 and 2028 catch up with demand, most of Micron’s revenue reprices with the market. Micron’s fiscal first-quarter report, due in mid-to-late December, is the next big test.
So what is Micron stock actually worth?
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