Memory supply shortage may persist until 2028! UBS Group AG raises Micron's (MU.US) earnings, bullish on HBM boom + incremental buybacks.

UBS Group AG's latest research report provides a forward-looking analysis of Micron Technology, Inc. (MU.US) for the fourth quarter of fiscal year 2026 (August) and fiscal year 2027. The core thesis points to a persistently widening supply-demand gap in the memory industry, with market focus gradually shifting from short-term trading momentum to cycle durability and capital returns. UBS Group AG maintains its $1,625 price target on Micron and reiterates its Buy rating. The valuation methodology adjusts the forward NTM P/E assumption downward from 11x to 8x, anchored to fiscal year 2029 EPS, with LTA agreements building earnings resilience through the cycle. Earnings Forecast The research report raises Micron's fourth quarter fiscal year 2026 revenue forecast to $52.4 billion (previously $51.5 billion), and EPS to $32.50 (previously $31.94), beating consensus by 3.9% and 4.3% respectively, with both metrics above company guidance. The earnings upside is primarily driven by improved product pricing. By segment, DRAM is expected to generate $39.7 billion in revenue, with HBM revenue at approximately $3.5 billion; NAND revenue is estimated at $12.7 billion. Gross margin for the quarter is projected at 87.6%, 160 basis points above the company's 86% guidance. For the next quarter (November, first quarter of fiscal year 2027), UBS Group AG anticipates Micron's revenue guidance range of $58-59 billion, with gross margin rising another 100 basis points quarter-over-quarter to 88.86%. Looking further ahead, the institution raises its EPS forecasts for fiscal years 2027, 2028, and 2029 to $184.19, $274.97, and $219.15 respectively (previously $184.89/$265.65/$165.37), significantly above consensus. Gross margin is expected to peak at 91% in the fourth quarter of fiscal year 2027 through the first quarter of fiscal year 2028, corresponding to gross margins of 85.6%/90.2%/89.5% for fiscal years 2026/2027/2028 respectively. HBM and Industry Supply Landscape On HBM, fiscal year 2027 HBM bit shipments are estimated at 11.72 billion Gb, slightly raised from prior estimates. NVIDIA Corporation's next-generation VR300 GPU memory specifications have been downgraded, with the first-generation product equipped with only 384GB HBM4, upgrading to 512GB HBM4E in the third quarter of 2027, below the previous market expectation of 768GB. However, limited HBM supply can be allocated to more GW-level server racks, providing a hedge. Meanwhile, suppliers continue to raise HBM and DDR premiums. Combined HBM average pricing is expected to rise approximately 76% year-over-year in fiscal year 2027, with HBM4 at approximately $30/GB and HBM4E at approximately $33/GB. On the supply side, Yangtze Memory's DRAM bit share is expected to increase from 7% in 2025 to 9% in 2027, but constrained by its installation, yield, and process gaps, market concerns over capacity expansion are somewhat overdone; industry DRAM will remain in shortage at least until the second quarter of 2028. Yangtze Memory's new capacity is shifting more toward DRAM, which to some extent extends the NAND price increase cycle. LTA long-term agreements suppress short-term spot price increases but provide bottom support for corporate earnings. Capex and Share Buyback Outlook Fiscal year 2027 capex is estimated at $51 billion, with capital intensity remaining at low double digits. Constrained by the U.S. CHIPS Act, Micron's buyback ban will be lifted on December 9, 2026. The research report judges that the company will not release buyback signals early; buybacks are expected to commence in the second quarter of fiscal year 2027, with an initial scale of approximately $20 billion/quarter, potentially rising to nearly $50 billion/quarter by the end of fiscal year 2027. Valuation, Rating, and Risk Disclosure UBS Group AG maintains Micron's $1,625 price target and reiterates its Buy rating. The valuation methodology adjusts the forward NTM P/E assumption downward from 11x to 8x, anchored to fiscal year 2029 EPS, with LTA agreements building earnings resilience through the cycle. On the risk side: memory has strong cyclical characteristics; macroeconomic deterioration leading to demand downturn and product ASP declines exceeding expectations pose downside risks to the stock price; delays in technology iteration may affect the pace of supply release; accelerating AI penetration and supply falling short of expectations could constitute upside catalysts.