One-Minute Overview
Thesis Pillars
Profitability Normalization
FY2024 marked the inflection: gross margins reset from -9.10% (FY2023A) to 22.40% (FY2024A), with forward projections reaching ~52–53% by FY2025P–FY2027P. Driven by DRAM/NAND mix improvement, HBM ramp, and node-level cost reductions.
Operating Leverage
EBITDA scales from $9.1B (FY2024A) to $19.1B (FY2025P) and $25.3B (FY2026P). EBITDA margin expands from 36.20% to over 50% as Micron's largely fixed manufacturing base absorbs incremental revenue at high marginal margins.
Mix & Technology Execution
The transition to HBM3E and advanced DRAM/NAND nodes improves not just margin levels but margin quality — shifting Micron's earnings mix toward higher-value, structurally stickier product lines with stronger pricing dynamics.
Market Under-Crediting Durability
The consensus still frames Micron through a trough-recovery lens. The market is anchored to a fragile-cycle mental model and is not willing to capitalize what is becoming a durable, structurally improved earnings stream.
Variant Perception
Underwriting Conditions
- Gross margin reset to ~52–53% in FY2025P–FY2027P must hold — driven by DRAM/NAND mix, HBM ramp, and node transitions
- EBITDA must scale from $9.1B (FY2024A) to $19.1B+ (FY2025P) as the fixed-cost manufacturing base absorbs incremental revenue
- Capex held at ~$16.0B/year through FY2028P; operating cash flow must exceed capex to sustain self-funding reinvestment
- HBM3E and advanced node adoption must proceed on schedule to validate the mix-improvement thesis
- No severe, prolonged pricing downturn in DRAM or NAND that would reverse the margin regime shift
Model Snapshot
Historical Financial Summary
| Metric | FY2023A | FY2024A |
|---|---|---|
| Revenue ($B) | $15.5 | $25.1 |
| Gross Profit ($B) | ($1.4) | $5.6 |
| Gross Margin | -9.10% | 22.40% |
| EBITDA ($B) | $2.0 | $9.1 |
| EBITDA Margin | 12.90% | 36.20% |
| Cash from Operations ($B) | $8.5 | $17.0 |
Forward Forecast Summary
| Metric | FY2025P | FY2026P | FY2027P | FY2030P |
|---|---|---|---|---|
| Revenue ($B) | $32.9 | $42.7 | $49.7 | $60.7 |
| Gross Margin | ~52–53% | ~52–53% | ~52–53% | ~52% |
| EBITDA ($B) | $19.1 | $25.3 | $29.7 | $35.0 |
| Capex ($B) | $16.0 | $16.0 | $16.0 | $15.0 |
Balance Sheet & Leverage
| Metric | FY2024A | FY2025P | FY2026P | FY2027P | FY2030P |
|---|---|---|---|---|---|
| Liquidity ($B) | $9.2 | $16.6 | $27.7 | $37.8 | $88.4 |
| Total Debt ($B) | $13.5 | $13.5 | $13.2 | $13.0 | $13.3 |
| Net Debt ($B) | $4.3 | ($3.1) | ($14.5) | ($24.8) | ($75.1) |
| Debt / EBITDA | — | 0.70x | — | — | 0.40x |
Source: EQUITY RESEARCH PAPER (MU). FY ends in August. "P" = Projected. "A" = Actual.
Valuation Framework
The valuation blends four methodologies — an exit-multiple DCF (EMM), a perpetuity-growth DCF (PGM), and two relative-value approaches using EV/EBITDA and EV/Revenue multiples from a semiconductor comparable set. WACC is 12.30%, derived from a cost of equity of 13.00% (beta of 1.96, equity risk premium of 5.00%) and cost of debt of 3.29%.
Sensitivity Analysis
Exhibit 9A: WACC vs. Terminal Growth Rate (Blended Target Price)
| WACC \ g | 2.00% | 2.25% | 2.50% | 2.75% | 3.00% | 3.25% |
|---|---|---|---|---|---|---|
| 10.5% | $435.72 | $436.64 | $437.62 | $438.67 | $439.79 | $440.98 |
| 11.0% | $417.35 | $418.13 | $418.95 | $419.83 | $420.78 | $421.75 |
| 11.5% | $400.21 | $400.86 | $401.56 | $402.29 | $403.07 | $403.90 |
| 12.0% | $384.17 | $384.70 | $385.32 | $385.94 | $386.60 | $387.29 |
| 12.3% | $370.05 | $375.36 | $376.10 | $376.77 | $372.25 | $372.89 |
| 12.5% | $369.16 | $369.64 | $370.15 | $370.67 | $372.23 | $371.82 |
| 13.0% | $355.10 | $355.51 | $358.94 | $356.39 | $356.86 | $357.80 |
| 13.5% | $341.91 | $342.60 | $342.63 | $343.02 | $343.42 | $343.85 |
Exhibit 9B: Gross Margin vs. WACC (Blended Target Price)
| Gross Margin \ WACC | 10.50% | 11.00% | 11.50% | 12.00% | 12.50% | 13.00% |
|---|---|---|---|---|---|---|
| 45.00% | $454.91 | $445.73 | $398.25 | $381.06 | $366.74 | $352.51 |
| 48.00% | $455.89 | $435.83 | $417.16 | $399.76 | $383.60 | $368.31 |
| 50.00% | $470.14 | $449.23 | $429.77 | $411.62 | $394.68 | $378.83 |
| 52.50% | $487.96 | $465.98 | $445.53 | $426.46 | $408.65 | $391.99 |
| 55.00% | $506.78 | $482.73 | $461.29 | $441.29 | $422.62 | $405.16 |
| 57.50% | $523.59 | $499.48 | $477.04 | $456.13 | $436.59 | $418.32 |
Source: EQUITY RESEARCH PAPER (MU), Exhibits 9A–9B.
Key Risks
Pricing Durability Risk
The margin reset may fail to persist if DRAM/NAND pricing deteriorates faster or deeper than the model assumes, particularly in a demand slowdown.
Margin Sustainability Risk
Mix improvement and fab-level absorption could stall if HBM adoption slows or if competitive dynamics erode Micron's pricing power in advanced memory.
Cash Conversion Risk
The self-funding assumption depends on operating cash flow exceeding ~$16B/year capex. Any shortfall forces external financing or investment cuts.
Terminal Capitalization Risk
If the market refuses to re-rate Micron away from its historical trough-recovery multiple, the exit multiple assumption breaks down.
Timing and Path Risk
A cycle interruption before Micron can demonstrate multi-quarter margin durability would delay or prevent the market's recognition of the regime shift.