Micron (MU): The HBM3 Supercycle
1. Executive Summary
Micron is no longer just a commodity memory provider; it is a critical infrastructure play for the AI revolution. The demand for High Bandwidth Memory (HBM3E) used in NVIDIA's GPUs has created a supply shortage that is driving pricing power to historic highs, decoupling Micron from the traditional PC/Smartphone cycle.
Key Thesis Points
- AI Supply Deficit: HBM capacity is sold out through 2025. This visibility is unprecedented in the memory industry.
- Technology Leadership: Micron has arguably surpassed Samsung in HBM3E yield and power efficiency, winning share in the H100/H200 supply chain.
- Capital Discipline: The oligopoly (Samsung, SK Hynix, Micron) is exercising restraint in CapEx, preventing the oversupply that typically kills memory rallies.
2. Business Overview
Micron manufactures DRAM (Dynamic Random Access Memory) and NAND (Flash Memory).
- DRAM (70% of Rev): Server, PC, Mobile, and now HBM for AI.
- NAND (30% of Rev): SSDs for data centers and devices.
- Manufacturing: Fabs in US, Taiwan, Japan, Singapore.
3. Financial Analysis
(See Financials Tab for live data)
- Cyclicality: Memory is the most cyclical part of tech. We are currently entering the "Up" leg of the cycle.
- Gross Margins: Expected to expand from mid-teens to 40%+ as HBM mix increases.
- Operating Leverage: Every dollar of price increase flows almost purely to the bottom line.
4. Valuation
Micron always looks expensive at the bottom (negative earnings) and cheap at the top (peak earnings).
- Book Value: Trading at a premium to historical book value, justified by the structural AI tailwind.
- Forward PE: Meaningless in early cycle; focusing on normalized earnings power of $10-$12/share in FY26.
5. Risks
- Samsung CapEx: If Samsung floods the market with legacy DRAM, pricing crashes.
- China: Micron was banned from critical infrastructure in China, a permanent revenue headwind.
- Demand Cliff: If AI training demand pauses, the HBM shortage vanishes overnight.