Memory prices fall, Citi sharply lowers Micron's target price!

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Citi, citing the recent significant weakness in DDR5 DRAM spot prices, has sharply cut Micron Technology’s target price by 17%, but maintains its Buy rating and all earnings forecasts unchanged, believing the long-term logic of AI-driven storage demand remains fundamentally unshaken.

According to ZF Trading Desk, Citi analyst Atif Malik lowered Micron’s target price from $510 to $425 in a research report released on March 31, a drop of 17%. As of the close on March 30, Micron’s share price was $321.80, still about 32% upside compared to the new target price.

According to the report, mainstream DDR5 16GB DRAM spot prices have recently dropped about 6%, mainly due to market concerns over Google’s TurboQuant technology. This technology is believed to potentially reduce AI inference memory consumption, triggering worries about the outlook for storage demand.

Micron and its peers have begun negotiations with hyperscale cloud service providers on 3- to 5-year strategic long-term agreements. These agreements cover locked-in base procurement volumes, prepayment arrangements, and quarterly price adjustment mechanisms based on market conditions, which are expected to effectively support contract pricing.

DRAM Spot Prices Under Pressure, Direct Trigger for Target Price Downward Revision

Since the beginning of the year, mainstream DRAM spot prices have generally been in a downward trend, with DDR5 16GB products falling by about 6% recently.

Based on this, Citi analysts lowered their valuation benchmark for Micron from 6x to 5x trough PE, using expected 2027 peak EPS as the basis and arrived at a new $425 target price, consistent with the historical trough range of 5-6x in past DRAM cycles.

Notably, Citi kept all its financial forecasts for Micron unchanged: core EPS forecast for FY2026 is $58.46, and for FY2027 is $94.55. The current share price corresponds to an expected PE of about 5.5x for 2026 and about 3.4x for 2027, which are at relatively low historical levels.

Long-term Contracts Provide Structural Support to Contract Pricing

Despite pressure in the spot market, the downside risk for contract pricing is relatively controlled.

The report points out that Micron and its peers in storage are negotiating 3- to 5-year strategic long-term contracts with hyperscale cloud service providers, covering base order volume locking, prepayment arrangements, and dynamic quarterly price adjustments based on market conditions.

Such long-term contract frameworks are expected to structurally support contract pricing. About 79% of Micron’s revenue comes from its DRAM business, so contract price trends are vital for its earnings visibility.

TurboQuant Impact Seen as Similar to DeepSeek, May Boost Long-term Demand

Regarding the main reason for this round of spot price decline, the report conducted a special assessment of TurboQuant technology.

TurboQuant is a model compression technology developed by Google’s research team, optimizing KV cache computing through new quantization methods (including PolarQuant technology and the QJL algorithm), thereby reducing memory consumption during AI inference.

The report believes TurboQuant’s impact on storage demand is similar to the previous DeepSeek incident: on the surface, efficiency technology reduces AI inference computing power and memory cost per use, but lower usage costs will further unlock application volume, ultimately boosting overall computing power and memory demand.

Historically, cheaper technology has often driven greater technology demand, and the field of AI is no exception. Therefore, Citi judges that the recent dip in spot prices reflects short-term market sentiment disturbance, not a trend reversal in AI-related memory demand.

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The above content comes from ZF Trading Desk.

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