The truth behind Micron's surge: No longer a "cyclical stock," UBS is re-evaluating it as a "growth stock"

Author: XinGPT

Micron surged today, and one of the core reasons is that UBS (UBS) directly raised Micron’s rating and valuation target to $1,635!

So I took a close look at the original text of UBS’s report today, where it significantly upgraded Micron—at the core is a change in valuation methodology.

Previously, UBS used a sum-of-the-parts (SoTP) approach for Micron, valuing it based on P/S multiples. It split Micron into two parts: the HBM business and the core DRAM + NAND business.

Adding the two parts together yields the original target price of $535. The implied logic of this approach is: Micron is still a strong cyclical memory storage company, but the HBM business is higher quality, so it assigns different revenue multiples to different segments. (Figure 1)

Now UBS uses an overall P/E valuation, raising the target price from $535 to $1,625. The new method uses roughly 15x NTM P/E, anchored to an EPS of about $117 in 2029, and discounts back to 2028 using a cost of equity of about 12%.

UBS chose the 2029 EPS because it believes that by then, the model will already include a cycle of mild downside for storage, and if Micron can still earn more than $100 EPS at that time, it would indicate that this is not merely peak profit from a cycle, but a “through-cycle” earning capability that is closer to reality. (Figure 2)

The core reason for the shift in the valuation method is LTAs, meaning long-term agreements.

UBS believes that the new round of enhanced LTAs not only locks in shipment volumes, but also includes 3- to 5-year terms, fixed volume commitments, and some fixed-price mechanisms. It estimates that in 2027, about 20% to 30% of the industry’s DDR shipments will be covered by this type of agreement, with Micron at about 20%, and hyperscalers already having locked in about 60% to 70% of the industry’s Server DDR5 volume. As a result, Micron’s revenue and profit visibility increases, and DDR price peak-to-trough fluctuations may be reduced by about half.

So, UBS’s view is: Micron is no longer just a company that makes money by riding the upswing in the memory price cycle; instead, due to AI demand and long-term price-and-volume lock-in agreements, the stability of its profitability is systematically enhanced.

Therefore, the valuation framework changes from “segment revenue multiples” to “overall earnings multiples.” The key change is upgrading from “revaluing HBM separately” to “revaluing Micron as a whole.”