Micron Technology (MU) shares rose on Friday as RBC Capital Markets said the memory-chip maker’s valuation does not fully reflect its exposure to the artificial intelligence-driven memory boom.
Micron stock gained as much as 3.12%. RBC analyst Srini Pajjuri reiterated an Outperform rating and a $1,500 price target.
Pajjuri pointed to rising memory requirements from AI workloads, including the shift towards more memory-intensive agentic AI applications.
AI demand keeps memory supply tight
RBC said memory demand continues to exceed available supply, with several structural constraints contributing to the imbalance.
These include rapid growth in high-bandwidth memory (HBM), limited clean-room capacity and tight availability of extreme ultraviolet (EUV) equipment.
HBM has become increasingly important for AI accelerators because it can provide high memory bandwidth for demanding AI workloads.
The expansion of agentic AI could further increase memory requirements as AI systems become capable of operating with greater autonomy and handling multiple tasks.
A Seeking Alpha report also argued that AI is changing the historical cyclicality of memory demand.
Memory consumption has traditionally been driven by equipment volumes and increasing memory content per device, making the industry sensitive to hardware replacement cycles.
However, Micron’s margins have shown a prominent upward trend since 2022, while the company has also repeatedly exceeded market expectations in recent quarters.
Micron is scheduled to report its next results on September 30.
Valuation leaves room for expansion
Despite the tight supply-demand environment, RBC said Micron’s valuation remains relatively modest.
According to Pajjuri, Micron trades at approximately 6.5 times expected forward earnings. He said this valuation gives limited credit to the company’s Strategic Customer Agreements and floor pricing agreements.
RBC believes the combination of sustained AI demand, structural supply constraints, and customer agreements could support an expansion in Micron’s valuation multiple.
Long-term contracts are becoming increasingly important in the memory industry.
Micron and its peers are securing agreements that establish future purchasing commitments for DRAM and NAND products.
These arrangements can provide greater visibility into future demand while reflecting the tight conditions across the memory market.
Capacity constraints support memory prices
The memory industry’s supply response is constrained by the time required to expand physical capacity.
New facilities require construction, equipment installation, qualification, and increases in production throughput, which can extend the period before additional supply becomes available.
There is also high barriers to entry and a relatively small number of competitors with global scale and experience through previous industry downturns.
Capital allocation decisions have increasingly been driven by expected returns rather than attempts to gain market share through higher production volumes.
This dynamic has contributed to a gap between memory supply and demand and supported higher memory prices.
AI workloads could add another structural source of demand as larger models, wider context windows and more advanced reasoning capabilities require greater memory capacity.
For Micron, the combination of AI-driven consumption, tight industry capacity and longer-term customer agreements remains central to the outlook ahead of its September 30 earnings report.
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