Bernstein: Storage Shortage Will Continue Until 2028, Sets Target Price of $1,300 for Micron (MU.US)

According to Zhitong Finance APP, the leading player in the storage price increase cycle has delivered a performance of “significantly exceeding revenue expectations but slightly underperforming profit margins.” On October 1, Bernstein analyst Mark Li’s team released a quick review of Micron Technology’s (MU.US) FY2026 Q4 (ending August 2026) results, maintaining an “Outperform” rating and a target price of $1,300. The core judgment of this review is: Micron is turning more optimistic about the cycle, expecting supply in calendar years 2027 and 2028 to be “much tighter” than in 2026. Despite increasing capacity, due to clients constantly proposing new demands, the company currently does not see an end to the shortage.

Last Quarter Revenue Up Over 30% QoQ, NAND Price Increase Is Main Driver

Micron’s Q4 revenue was $54.229 billion, up 30.8% quarter-over-quarter, 6.0% above Bernstein’s estimate, and 5.3% above the 28-day consensus; GAAP gross margin was 86.8%, GAAP EPS was $32.87, and non-GAAP EPS was $33.42, exceeding estimates by 4.3% and 5.5% respectively. The highlight of this report is NAND: that segment’s ASP (average selling price) rose about 30% QoQ, far exceeding Bernstein’s previous forecast of 18.0%, with bit shipments up about 10% QoQ; DRAM’s ASP also recorded a “high-teen percentage” increase, above the estimated 17.8%.

However, the operating margin was lackluster: the 80.7% operating margin was 2.3 percentage points lower than Bernstein’s estimate, not due to demand, but because employee incentive compensation drove up operating expenses—these bonuses squeezed profits from both Q4 operating expenses and the cost of goods sold in the new quarter.

Guidance Again Exceeds Expectations, But Gross Margin “Yields” to Bonuses Again

Management’s revenue guidance for FY2027 Q1 (September to November 2026) is $60–63 billion, implying 11%–16% QoQ growth—not only higher than Bernstein’s estimate of $58.065 billion (guidance is 3%–8% above their estimate), but also 8%–13% higher than the 28-day consensus of $55.789 billion, indicating ASP increases are continuing. GAAP EPS guidance is $36.84–$38.84, 3%–9% above Bernstein’s estimate.

But the gross margin guidance is again soft: about 86.0%, about 1 percentage point lower than both Bernstein’s estimate of 87.2% and consensus of 87.0%, again due to incentive bonuses affecting cost of goods sold. Bernstein judges that this cost headwind will diminish in the future, and Micron expects moderate price increases will drive higher gross margins for the remainder of FY2027 after Q1.

Supply Outlook More Optimistic: Net Capex Raised Again to Over $50 Billion

The most significant call in the report is on supply and demand. Micron is now much more optimistic about this cycle, predicting supply in 2027 and 2028 will be “much tighter” than in 2026. Although capacity is increasing, as clients keep introducing new demands, the company does not foresee an end to the shortage.

To keep up with demand, Micron has further raised its FY2027 net capital expenditure guidance to over $50 billion, about $25 billion in the first half, and even more in the second half; most of this increase is to accelerate cleanroom construction by the end of calendar 2028 and beyond. For distinction, Bernstein’s financial model estimates $45 billion for FY2027 capex—this is the investment bank’s estimate, while the company’s guidance is “over $50 billion.”

26 SCA Contracts Lock in 75% of Output, But Deposits Cover Only 20%

Micron disclosed that it has signed 26 Strategic Customer Agreements (SCA) so far, and management estimates these contracts cover over 35% of revenue before 2030, expecting this figure to rise to about 50% in the future. The contract clauses fall into two types: about three-quarters of the SCA revenue has a clearly defined pricing framework, mostly with price bands set with upper and lower limits; the remaining quarter is renegotiated periodically at market prices. Clients are also requesting supply lock-ins beyond 2030—Micron has signed SCAs extending to 2031 and added one-year extensions to two agreements; any new SCA involving pricing is negotiated based on current market conditions and outlook, resulting in higher prices.

Including non-SCA customer purchase orders, more than 75% of Micron’s FY2027 output is “locked in” today. Customer financial commitments have risen to $32 billion, the vast majority of which is cash deposits.

However, Bernstein adds a note of caution: the $32 billion in financial commitments is only about 20% of the $150 billion remaining performance obligations (RPO). The report states, “We still doubt the executability of the SCA,” and believes that Micron’s future profits depend largely on how long the shortage lasts—in other words, in the worst-case scenario, commitments without deposits may not be fulfilled.

HBM Is Pricier, But Still Not as Profitable as Standard DRAM; Capital Return Provides Downside Protection

In terms of HBM (High Bandwidth Memory), supply contracts for calendar 2027 HBM are basically finalized, with prices significantly higher. Micron says this will narrow the profit margin gap between HBM and standard DRAM—in other words, even though HBM prices rise, it is still not as profitable as standard memory. Consistent with Bernstein’s model, Micron expects HBM bit shipments to continue outpacing overall DRAM through 2028. Segment data confirms this margin difference: Cloud Memory’s gross margin lagged other segments in Q4, which Bernstein interprets as “most likely because HBM profitability is below standard memory”; meanwhile, Core Data Center business revenue share rose to 33%, up from just 14% a year ago, highlighting AI-driven demand dominance.

Another support for share price comes from capital return. Micron reiterated that all excess cash above its target cash level will be returned to shareholders, with buybacks to increase after December 9; the target cash level is expected to be reached by the end of FY2027 Q1. Citing consensus estimates, Bernstein says from that point through the end of FY2028, Micron could generate $250–$300 billion in free cash flow—if all cash above the target level is returned, this equates to a 21%–25% “yield.” The report believes this is sufficient to support the share price.

Valuation: Up Over 270% Year-to-Date, Investment Bank Still Sees About 20% Upside

Bernstein maintains an “Outperform” rating on Micron with a $1,300 target price, anchored on a 7.6x one-year forward P/E ratio. The model forecasts FY2026 (ending August 2026) revenue of $130.099 billion and adjusted EPS of $73.78; FY2027 revenue of $273.341 billion and adjusted EPS of $173.33—corresponding to a projected FY2027 P/E of just 6.1 times.

As for the stock, Micron’s market cap is about $1.2 trillion; up about 270% year-to-date, while the S&P 500 is up only 12% in the same period; 52-week range is $165.50 to $1,255.00. The report’s conclusion can be summarized in one sentence: Overall, it is expected that the shortage will continue in calendar 2028, which is the most bullish factor—maintain Outperform.