Micron (MU) shares have had a monster rally heading into the memory chip specialist’s fiscal Q3 earnings scheduled for Jun. 24 after market close.
Consensus is for MU’s revenue to nearly quadruple on a year-over-year basis in the third quarter to about $35 billion on a 10x increase in per-share earnings (EPS) to $19.72.
Simply put, Wall Street is anticipating an absolute blowout quarter, driven entirely by the explosive global buildout of artificial intelligence (AI) infrastructure.
Year-to-date, Micron stock is currently up some 250%, but Bernstein analyst Mark Li believes the rally isn’t out of juice just yet.
At the time of writing on Monday, the stock is up around 5%. The rally comes even as the broader tech sector is struggling at the bourses.
Shares of Alphabet fell around 6% amid concerns over high-profile AI talent departures, while Amazon and Meta Platforms lost 4% and 3%, respectively.
Why Bernstein remains bullish on Micron stock
On Monday, Li reiterated his “Outperform” rating on MU shares and more than doubled his price target to $1,300, indicating potential upside of approximately 10% from current levels.
Li’s ultra-bullish thesis is based primarily on the severe, structural shortage gripping the dynamic random-access memory (DRAM) market.
Historically, the semiconductor memory sector has been notoriously cyclical, plagued by frequent gluts and subsequent price collapses.
However, the Bernstein analyst sees the current supply deficit as fundamentally different, tracking as far more acute and long-lasting than previously modeled.
Tech giants and data center operators are purchasing advanced memory architectures at an unprecedented pace to backstop high-performance graphics processing units (GPUs).
Because shifting production capacity to specialized AI memory constraints conventional DRAM output, industry supply is tightening across the board.
Bernstein projects that this disciplined supply-demand imbalance will sustain immense pricing power for Micron well into calendar year 2027.
Consequently, standard Wall Street model assumptions are likely underestimating the duration of this upcycle, leaving significant room for consecutive quarters of earnings beats and upward consensus revisions.
What else could drive MU shares higher
The second catalyst fueling Li’s conviction is the huge pricing leverage inherent to high-bandwidth memory (HBM).
To reflect this structural evolution, the firm notably shifted its valuation framework for Micron from price-to-book (P/B) to price-to-earnings (P/E), modeling unprecedented margin thresholds for the chipmaker.
Bernstein highlights that HBM contract prices must undergo a sharp re-acceleration to completely close the lingering profitability gap with conventional DRAM processing.
Micron’s HBM capacity for calendar year 2026 is already fully allocated, and early 2027 visibility remains exceptionally strong.
As premium-priced HBM4 and HBM3E volumes scale up, the richer product mix will dramatically expand corporate gross margins, which are already guided near a record-breaking 81% for Q3.
Bernstein notes that as these favourable contract repricings materialize, they will fuel massive upward adjustments to forward consensus earnings.
Li projects that Micron’s fiscal 2027 earnings capacity will ultimately land significantly north of Wall Street estimates, fundamentally justifying a much higher valuation multiple for Micron shares.
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