Isenberg MU Deck

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1. Recommendation: Long 1 Micron Technology, Inc. (NASDAQ: MU) Investment Presentation Albert Zhou Princeton University Connor Chen Princeton University Maddie Miao Princeton University Abigail Kestenbaum Princeton University
2. Micron is a leading semiconductor memory provider, building memory chips that serve enterprise and consumer data storage needs. Business Overview Sources: Micron 10K, SemiAnalysis 2 • Micron is a leading semiconductor memory provider, building memory chips that serve enterprise and consumer data storage needs. • Micron offers DRAM and NAND products that power memory for data center, mobile, PC, automotive, and industrial end markets. • Micron is 1 of 3 companies, along with SK Hynix and Samsung, that dominate the DRAM market. Micron Business Description Description DRAM Product NAND NOR 71% 29% Sales Mix • NAND (Non-Volatile, Rewritable Memory) is a memory chip with high density, allowing it to have high capacity for data storage, but making it the slowest type of memory chip. • SSD (Solid State Drives): Standalone storage devices used in data centers, PCs, and enterprise systems, offering high capacity and performance. • Managed NAND: Includes solutions like UFS and eMMC, where a controller is integrated with NAND to manage storage functions. It is commonly used in smartphones and tablets. • MCPs (Multi-Chip Packages): Combines NAND with DRAM in a single package, typically for space-constrained mobile devices, enabling compact memory solutions with both storage and memory functions. • DRAM (Dynamic Access Random Memory) is a memory chip with low-latency and high speed data retrieval, allowing it to be quicker than flash/hard-disk drives, but less dense and thus storing less data. There are 4 types of DRAM chips that Micron provides. • DDR (Double Data Rate): Standard DRAM chips that has a variety of use-cases. • GDDR (Graphics DDR): Offers more capacity at lower cost but is slower and has more power consumption than regular DDR. GDDR is useful for graphics, but has capacity limits and power level limits that limit the size of AI applications that can use it. • LPDDR (Low Power DDR): Lower power operation chips, which limit memory capacity. LPDDR is useful for mobile phones and laptops, where low power consumption is optimal, and memory capacity is not as necessary. • HBM (High-Bandwidth Memory): Priotizes power efficiency and bandwidth, making it the most useful for AI applications, and commands a 5-8x price premium relative to standard DRAM products. • NOR (Non-Volatile, Rewritable Memory) is a memory chip similar to NAND but with fast read speeds, allowing it to be used for reliable code storage and changing small data storage. • Used in automobile, industrial, and consumer end markets. <1%
3. The memory industry is highly consolidated. Micron is 1 of 3 players in the DRAM space, and 1 of 5 players in the NAND space. Industry Overview Competitors Sources: Micron 10K, SemiAnalysis Advantage / Moat 3 • Micron has an edge as the first to mass produce a 232-layer QLC NAND. • Hynix is pushing innovations with its 321-layer TLC NAND is set for mass production in 2025. • Samsung, despite leading in market share (35%), has fallen behind in technology, with much of its production still on 128-layer NAND, though it has recently begun mass production of 290-layer NAND. Micron Market Share: 20% Costs: Scaling production capacity, yield improvement and bonding technology optimization, significant R&D investment Drivers: Surging AI and data center demand, competitive performance and power efficiency, strategic partnerships, especially with TSMC • Hynix leads the HBM market with 56% share due to its first-mover advantage, being the first company to release HBM chips in 2013, securing early supplier agreements with AMD, NVIDIA, and Intel. • Micron didn’t enter the HBM arena until 2022, but has quickly gained market share since. • For the recent generation of HBM3E chips, Micron beat Samsung and Hynix to market by 11 weeks, capturing 30% of NVDA 2024 HBM3E allocation. Micron Market Share: 24% Costs: High CapEx for fabs and EUV equipment, significant R&D investment for advanced nodes, yield optimization and bonding technology Drivers: AI and data center demand, technology leadership in advanced nodes, yield and cost efficiency • Micron has become a leader in the DRAM market through early adoption of the advanced 1-γ process, a strong focus on EUV integration, and leadership in high-performance, low-power memory technologies. • Micron is positioned to gain long-term competitive advantage. NAND DRAM DRAM (HBM) Micron Market Share: 11% Costs: R&D expenses, CapEx for fabs and technology/equipment, manufacturing costs (wafers, labor, etc.) Drivers: Advancements in NAND technology, market competition, yield improvements in manufacturing Market Dynamics
4. Street fears supply/demand dynamics for standard DRAM, Micron’s HBM strength relative to competitors, and a downturn in the memory cycle in 2027. Market Sentiment and Setup Micron vs. SK Hynix Blended DRAM ASPs Bearishness on Standard DRAM Pricing • “SK Hynix, Micron and Samsung Electronics will have largely ramped-up their DRAM capacity by end-2025 and 2026, which could cause further deterioration in the demand/supply dynamics, potentially dragging down legacy DRAM and NAND prices” - Equity Research Analyst • “We view DRAM and NAND as commodity-like products prone to market supply-and-demand dynamics and steady pricing erosion” - Equity Research Analyst Bearishness on Micron HBM Product Offering Key Takeaways: Micron is down -39% from its 52-week high. Negative sentiment has been driven by 2 factors. Despite being bullish on the industry-wide mix-shift toward HBM providing an uplift to DRAM ASP, investors are fearful that weak supply/demand dynamics for standard DRAM will drag blended DRAM ASP. Furthermore, they believe that the memory cycle will experience a downturn in FY2027, making this cycle similar to others in length. Street is also doubtful about Micron’s HBM product offering, viewing the company as a clear 3rd player behind SK Hynix and Samsung. Sources: Bloomberg, Tegus, Morningstar Equity Analyst, China Renaissance Securities 4 • “We see Micron Technology as a strong supplier of memory chips, but we don’t believe the firm holds an economic moat. Micron benefits from large scale, being the fifth-largest chipmaker in the world, but we don’t see enough scale to generate consistent economic profits.” - Equity Research Analyst • “Micron, from a DRAM standpoint, they're more trying to keep up with SK Hynix more than anything else. SK Hynix is the clear leader especially for AI HBM.” - Former Senior Director at Western Digital Corporation Mar 2024 - 2025: MU -25%, KRW +9% Street models muted up-leg caused by weak standard DRAM pricing through FY2026, downturn in FY2027
5. Micron is well-positioned to capitalize on the upcoming supply-constrained supercycle driven by a mix-shift towards HBM. Investment Thesis Superior HBM Offering • The newest generation of HBM3E chips has allowed Micron to catch up to SK Hynix and Samsung, shifting competitive positioning into Micron’s favor. • Micron beat Hynix and Samsung to market by 11 weeks, capturing 30% of NVIDIA’s 2024 HBM3E allocation. • Web-scrapes reveal high levels of traffic to Micron’s HBM product page relative to competitors. Wall Street’s fears of weak supply/demand dynamics for standard DRAM products are overblown. Demand for HBM will actually cause supply constraints for standard DRAM products, driving ASP growth and a prolonged up-leg for the memory cycle. Micron’s superior HBM product offering will allow the company to capitalize on this supercycle. Our FY2026 year-end PT is $145/share (1.5x MOIC, +32% IRR, 18-month hold period) 5 Attractive Setup • Street sentiment remains muted, as bullishness on HBM is dampened by overblown fears about standard DRAM supply/demand dynamics, underestimation of the upcoming cycle length, and failure to recognize Micron’s ability to grow market share. • Downbeat consensus estimates yield an asymmetric return opportunity, and we believe Micron will beat consensus Adj. Diluted EPS by 28% in FY2027. Supply-Constrained Supercycle • HBM3E currently has a trade ratio of 3:1, meaning it takes three times as many wafers to produce the same bit as standard DRAM products. • GenAI demand is pushing a mix-shift towards HBM production. HBM has grown from 1.5% of total DRAM bits shipped in 2023 to a projected 15% by 2025YE. • As supply tightens from HBM production complexities, ASP for standard DRAM products should rise, driving a ~20% CAGR for DRAM ASP through FY2027. Cycle Length • Street believes that we are on the up-leg of the memory cycle till FY2026, albeit muted due to standard DRAM/NAND weakness, but models a downturn in FY2027. • Street believes this cycle is akin to previous waves, such as 2018 fueled by cloud-computing and 2020 fueled by WFH. • Street fails to recognize that this cycle has structurally different dynamics, and supply/demand dynamics should remain strong in FY2027. Base Case: $145 PT
6. Demand for HBM will create a supply-constrained supercycle that can sustain premium pricing and margin expansion through FY2027. Thesis #1a: Supply-Constrained Supercycle Factors Leading to Higher DRAM ASPs Mix-Shift Towards HBM HBM is necessary for GenAI due to higher bandwidth and power efficiency than standard DRAM chips. Because of HBM’s 5-8x premium pricing and GenAI demand, memory is undergoing a mix-shift toward HBM. HBM chips were just 1.5% of DRAM bits shipped in 2023, but are projected to become 31% by 2028. HBM Trade Ratio HBM has a trade ratio of 3:1. It takes 3 times as many wafers to produce an HBM bit relative to standard DRAM. As the memory industry undergoes an HBM mix-shift, standard DRAM will become supply-constrained. Blended DRAM Pricing Blended DRAM pricing thus benefits from a double-barreled pricing catalyst. First, HBM’s 5-8x premium pricing relative to standard DRAM. Second, standard DRAM being supply-constrained. Higher DRAM ASP will drive revenue and margin expansion through FY2027. HBM Bit Share Key Takeaways: With the advent of GenAI, demand for HBM has exploded. HBM’s higher bandwidth and power efficiency makes it a necessity for GenAI, making up ~50%+ of the cost of manufacturing for NVIDIA’s H100. HBM’s premium pricing and strong demand has caused the memory industry to undergo a mix-shift toward HBM. Sell-side acknowledges this mix-shift and the uplift of HBM’s premium pricing to DRAM ASP, but fails to recognize that standard DRAM supply must drop due to HBM’s production complexities. Street concerns about weak standard DRAM supply/demand dynamics are overblown. Blended DRAM pricing thus benefits from a double-barreled pricing catalyst that Street fails to realize, driven by (1) HBM’s premium pricing and (2) standard DRAM supply constraints. This DRAM ASP growth will drive revenue and margin expansion through FY2027. We are +37% vs. sell-side estimates on DRAM ASPs in FY2027. Sources: Tegus, SemiAnalysis, Company Filings, Bloomberg, Internal Estimates 6
7. GenAI demand is more sustained than previous catalysts for up-legs in the memory cycle, and supply/demand dynamics should remain strong through FY2027. Thesis #1b: Cycle Length Structurally Different Demand One-time vs. Secular Growth • “Of course [AI] is going to have a huge impact on … appetite for memory and storage moving forward. I think it's also going to introduce probably opportunities for innovation on both the memory side and the storage side” - Former Senior Director at Micron • Previous catalysts for up-legs in the memory cycle were one-time and quick in nature - e.g. an over-buying of PCs during 2020-2021 because of Covid-induced WFH that led to a sales hangover in 2022 and inventory glut. • GenAI is creating a more sustained secular demand surge. Memory suppliers report multiple vectors of growth in AI-related demand and AI use cases are still emerging. • AI memory content per node is compounding. Even if GPU volume is cyclical and begins to flatten, content per system keeps DRAM/HBM demand climbing through 2027. Supply Dynamics Increased Customization • “Tighter relationships with these customers can lead to customization opportunities … create an insulation from competition to a certain extent” - Former Chief Strategy Officer at Micron • Standard DRAM used to be almost a complete commodity. With the rise of HBM, memory is becoming increasingly customized. This reduces the ability of buyers to play suppliers off against each other and leads to stickier relationships and sustained pricing power. Trade Ratio • In previous cycles, demand was for commodity DRAM/NAND. For example, it was easy to scale DDR4 chips in 2021 to meet increased PC demand. Because of HBM’s trade ratio, memory providers will not be able to oversupply HBM chips to keep up with GenAI demand. Packaging Bottlenecks • “The central weakness is that it requires advanced packing which is currently limiting supply” - Executive Director at AI Engineering Consortium • Beyond wafer constraints, HBM requires advanced 3D packaging through stacking and TSVs, which is more complex and capacity-constrained than standard DRAM package. This further reduces risk of HBM oversupply. Sources: Tegus, Bloomberg, Company Presentations, Internal Estimates, TrendForce Key Takeaways: Sell-side currently models a downturn in the memory cycle in FY2027, with DRAM ASP decreasing -9% y/y and revenue decreasing ~3% y/y. Street seems to believe this up-leg of the cycle will be similar in length to previous cycles (WFH in 2020, Cloud Computing in 2018). This fails to recognize that structurally different demand, supply, and market dynamics will make the GenAI cycle more sustained. Supply/demand should remain strong through FY2027, contributing to our +37% beat on DRAM ASPs in FY2027. Memory Market 7
8. Micron is well-positioned to capitalize on the mix-shift away from standard DRAM and become an industry leader in high-value memory segments. Thesis #2a: Superior HBM Offering Rapid innovation to cutting-edge HBM3E: • At SK Hynix, “a sense of alert over Micron is growing” as Micron progresses “at a breakneck speed” Ongoing HBM-centric talent migration: • “About 110 employees of SK Hynix moved to Micron, more employees are expected… including those who hid their profiles” • “In Samsung Electronics, dozens of researchers are also known to have moved to Micron” Sources: Company Presentations, Internal Estimates, TrendForce, Maeil Business Newsletter, LinkedIn Key Takeaways: Micron is out-investing and out-executing peers in AI-oriented memory. Micron continues to attract high-caliber talent from direct competitors, signaling a serious commitment to leading in HBM and high-value memory. By contrast, SK Hynix sees minimal hiring and internal restructuring at Samsung has led to job cuts. As the AI wave bolsters demand for high-complexity and data-intensive applications, Micron is well-positioned to capture share of the HBM3E/4 and DDR5 markets. AI adoption will drive outsized HBM market growth, with Micron set to capitalize on this growth and become the #2 player in the space by 2027. Expert Call Read-Throughs 8 Three-Pronged Growth Algorithm AI Mix-Shift Favoring Micron’s Strengths Specialized memory requires 8+ HBM stacks and terabytes of DDR5. Micron’s outsized capex in HBM3E and high-speed DDR5 position the company to take DRAM share in the coming years as the HBM mix-shift continues. HBM Hiring Spree Outpaces Competitors Micron has ramped the build-out of its HBM and advanced packaging teams as they amass human capital to capitalize on the transition to next-gen memory, recently poaching 100+ employees from SK Hynix. Cutting-Edge Tech Stack Puts MU at Frontier Building out from 0% HBM share in 2022, Micron leapfrogged HBM3 and is already at-parity with peers in next-gen chips. SK Hynix engineers acknowledge that MU has “surpassed Samsung” and is on par with SK’s frontier nodes. HBM Market Share (%) HBM Shipments v HBM TAM
9. Micron is already delivering frontier high-performance memory products, and continues to make strategic investments to ensure it can meet end-market growth. Thesis #2b: Superior HBM Offering Sources: Company Presentations, Internal Estimates, TrendForce, SimilarWeb, LinkedIn, WayBack Machine, HuaTai Research Key Takeaways: AI models and compute are scaling exponentially, but memory is falling behind. For scaling laws to continue to apply, the industry must turn to HBM. Our internal data scrapes reveal that Micron is best-positioned to capture this transition. As the company hires engineers to build out its HBM product, this has led to (1) a leading-edge memory product despite only entering the HBM industry in 2023, and (2) elevated site visits relative to comps. While our thesis that supply-constraints will lead to DRAM ASP growth means we are lower than street on industry-wide bits shipped, our belief that Micron will grow market share contributes to double beats on bits shipped growth (+0.2%) and DRAM ASPs (+37%) in FY2027. 9 Memory Wall Necessitates HBM Growth Web Traffic Dominance High LinkedIn HBM-Centric Postings Micron outpaces comps in postings with keywords “HBM”, “TSV”, “3D stacking”, “package engineer” Micron leads top competitor SK Hynix in key site engagement metrics Micron Performance vs Benchmarks Micron is on-par or ahead of the frontier memory players, despite not having any HBM capacity in 2022 Transformer model growth has far outpaced memory growth, creating a “memory wall” that demands spend
10. We project a PT of $145 at FY2026 year-end, on $15.93 of Adj. Diluted EPS and a 9.1x NTM P/E multiple, representing a 1.5x MOIC and 32.0% IRR. Projections & Valuation 10 Sources: Company Presentations, Internal Estimates Key Assumptions • HBM becomes ~29% of DRAM bits shipped by 2027. • Incremental 1% shift of DRAM wafer capacity to HBM pro-forma removes ~3.2% equivalent bit supply from standard DRAM markets. • Standard DRAM ASP increases ~0.7% for every 1% reduction in supply. • Micron grows market share of HBM from 20% to 35% by 2027. • 9.1x NTM FY2026 P/E multiple reflects historical mid-to-late cycle multiple, which begins to compress as cycle reaches peak.
11. While the counter-thesis raises valid concerns, Micron remains well-positioned to capitalize on the mix-shift to higher margin HBM products in the near term. Risks, Mitigants, and Catalysts Risks and Mitigants Trade Tensions Disrupt Supply Chain (1) Geographically diversified production limits exposure (HBM3E fab in Hiroshima, packaging in Taiwan, R&D in US). (2) Japan government has committed ¥192B in subsidies for a second Hiroshima fab. (3) China represents only ~10% of sales. GPU Efficiency Gains Reduce Memory Dependency (1) HBM content per accelerator continues to grow. (2) Memory improvements are necessary to support scaling laws as transformer models grow. (3) New GPU generations require upgraded HBM3E stacks, rendering prior-gen HBM obsolete and sustaining replacement cycles. 11 Sources: Company Presentations, Internal Estimates, HuaTai Research Catalysts Accelerated HBM Share Gains (1) Micron could leapfrog Samsung in HBM market share by 2027. (2) Frontier tech stack could yield partnerships with leading chipmakers on next-gen products. Gross Margin Inflection from HBM Mix-Shift (1) HBM and DDR5 are tracking to >50% of DRAM sales by 2026, lifting blended ASP. (2) Micron leadership confirmed that HBM3E is gross margin accretive.