Financial institution of America revamps Micron inventory worth goal submit earnings

As anticipated, Micron Applied sciences (MU) delivered one other earnings stunner, posting blowout Q2 outcomes.

Consequently, Financial institution of America analysts led by Vivek Arya bumped their worth goal to $500 from $400, underscoring deeper confidence within the reminiscence big’s long-term outlook.

For BofA, the shift is broad-based and is upending the standard habits of the reminiscence cycle. For years, the sector was recognized for wild swings, however now, with provide remaining constrained amid a barrage of AI-driven demand, the script has utterly flipped.

Micron’s glowing Q2 report solely strengthened that view, with standout numbers and steerage nicely above market expectations, suggesting that demand remains to be outpacing provide.

Nonetheless, regardless of posting one other huge beat-and-raise quarter, Micron inventory dropped about 5% in after-hours and buying and selling early Thursday, March 19, in accordance with Reuters.

As of writing, Micron (MU) was buying and selling at $436.21 per share, per Yahoo Finance. 

Nonetheless, Micron has been one of many best-performing shares in current months, delivering an outstanding 161% acquire over the previous six months and greater than 54% yr so far, Looking for Alpha famous.

As I coated in my earlier article on Micron, Citi raised its worth goal forward of earnings, pushed by an unusually highly effective AI-driven reminiscence cycle and robust DRAM and NAND pricing.

Therefore, for now, the present setup seems like rather more than only a rebound, and as an alternative factors to a much more sturdy, AI-led upcycle.

Micron Q2 earnings snapshot

• Q2 non-GAAP EPS:$12.20, beating estimates by $3.54
• Q2 income:$23.86 billion, up 196.4% yr over yr, beating consensus by $4.56 billion
• Free money movement: A file $6.9 billion
• Dividend: Quarterly dividend of $0.15 per share
• Fiscal Q3 income steerage: $33.5 billion ± $750 million
  In contrast with the consensus of $23.27 billion
• Fiscal Q3 gross margin steerage:Roughly 81% on each a GAAP and non-GAAP foundation
• Fiscal Q3 working bills steerage:
  GAAP: Roughly $1.60 billion

  Non-GAAP: Roughly $1.40 billion

• Fiscal Q3 diluted EPS steerage:
  GAAP: $18.90 ± $0.40

  Non-GAAP: $19.15 ± $0.40

  In contrast with the consensus of $10.77

  Supply: Micron Know-how investor relations

Financial institution of America’s Micron name factors to an extended, stronger reminiscence upcycle

On the coronary heart of BofA’s bullish tackle Micron is a basic shift in how analysts view reminiscence.

CEO Sanjay Mehotra supplied his take throughout the Q2 earnings name.

Listed below are three key factors that stand out from the be aware.

• Pricing energy might last more. Reminiscence is mission-critical to AI infrastructure, and cleanroom capability is constrained via almost 2027-2028, limiting how rapidly provide can probably catch up.
• A brand new five-year provide settlement adjustments the playbook. Longer-term offers level to shoppers specializing in assured provide as an alternative of short-term pricing swings, providing Micron larger visibility than earlier cycles.
• Earnings energy is being reset larger. The agency raised its 2026-2028 EPS estimates by 70%-100%.

Micron inventory reacts as Financial institution of America updates its worth goal after the newest earnings outcomes shock.

Inexperienced/Bloomberg through Getty Pictures

The numbers behind BofA’s bullish name on Micron

• BofA reiterated a Purchase ranking on Micron inventory whereas elevating its worth goal to $500 from $400, a 25% enhance.
• With Micron at $461.73, that new goal factors to an 8.3% upside.
• BofA’s EPS mannequin additionally acquired a significant bump with 2026E EPS of 55.35, up from 8.29 in 2025A and 1.31 in 2024A.
• The agency additionally tasks 2027E EPS of $77.12 and 2028E EPS of $68.27, with earnings energy staying comfortably above prior-year ranges.
• These estimates sit far above consensus: for 2026E, BofA is at $55.35, in comparison with $37.54 for Bloomberg consensus and $37.78 for Seen Alpha.
• The identical hole holds in 2027E with BofA forecasting $77.12 EPS in contrast with $54.81 on Bloomberg and $56.51 on Seen Alpha.
• Regardless of the earnings ramp, valuation is compressed, with Micron buying and selling at simply 8.3 instances 2026 estimated earnings and 6 instances 2027 estimated earnings.

With this in thoughts, BofA analysts imagine that Micron’s margins will stay structurally above historic peaks, topping out close to 60%.

The financial institution isn’t ignoring the near-term dangers, although, as we see profit-taking within the inventory.

It sounded the alarm on spot pricing probably stabilizing and on Micron’s 81% gross margin steerage, marking a peak for this cycle.

On the margin matter, CFO Mark Murphy pushed again within the Q2 Q/A session on the decision. “Your question about reverting to some historical mean is the thing that should be revisited.”

“AI is a transformational secular driver,” Murphy added, saying the sector stays supply-constrained past 2026.

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Additionally, Micron’s ballooning fiscal 2026 capex, which is hovering above $25 billion, will rise meaningfully in fiscal 2027, with construction-related capex alone anticipated to leap by over $10 billion yr over yr.

The majority of that’s linked to the 2026 enhance in cleanroom and facility spending, which is able to proceed to stress its liquidity place.

For perspective, per GuruFocus, Micron’s cash-to-debt ratio stands at 0.83, modestly under its 10-year median.

Wall Avenue boosts Micron worth targets, however flags dangers as cycle matures

Wall Avenue raved about Micron’s Q2 earnings report, but it surely wasn’t with out some warning.

For probably the most half, the consensus is that earnings bolstered the continuing shift within the reminiscence area, spearheaded by AI demand, tight provide, and sturdy pricing energy.

Extra AI Shares:

• Morgan Stanley units jaw-dropping Micron worth goal after occasion
• Financial institution of America updates Palantir inventory forecast after non-public assembly
• Morgan Stanley drops eye-popping Broadcom worth goal

Nonetheless, in comparison with previous cycles, the present one has rather more endurance, particularly with relentless data-center demand and long-term provide agreements that add important visibility. 

Not everybody, although, is satisfied that it’s solely northward from right here.

Some see dangers round lofty margins and rising capex, significantly if pricing slows. However, the general view is that Micron is well-positioned, backed by sturdy fundamentals that assist continued progress because the cycle matures.

• Wells Fargo:$550, up from $470
• RBC Capital Markets:$525, up from $425
• JPMorgan:$550
• Citigroup:$510, up from $430
• Mizuho:$530, up from $480
• Morgan Stanley:$520, up from $450
  Supply: MarketScreener, StreetInsider

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