Micron's Strategic Position in a DRAM-Supply-Scarce Era: Why Now Is the Time to Reconsider Micron as a Core Holding

The global semiconductor landscape in 2025 is defined by a critical inflection point: a structural imbalance between memory chip supply and demand, driven by the explosive growth of AI infrastructure. At the center of this transformation is Micron Technology (NASDAQ: MU), whose strategic positioning in the DRAM and HBM markets has never been stronger. With rising price targets from analysts, robust financial metrics, and a supply-demand dynamic favoring memory producers, the case for Micron as a core holding in 2026 is compelling.

A Market Share Surge and Revenue Resilience

Micron's Q4 2025 performance underscores its dominance in a tightening DRAM market. According to TrendForce, the company captured a 25.7% global DRAM market share in the quarter, a 3.7 percentage point increase from Q3 2025, driven by strong bit shipments and a 53.2% quarter-over-quarter revenue jump to $10.65 billion. This growth was fueled by surging demand for AI-driven data center infrastructure, which has become a critical use case for DRAM and high-bandwidth memory (HBM).

Micron's HBM business, in particular, has emerged as a cornerstone of its financial success. The company reported nearly $2 billion in HBM revenue for Q4 2025, with management revealing that its 2026 HBM supply has already been sold out. Analysts project a 40% annual growth rate for HBM, with the addressable market potentially reaching $100 billion by 2028. This trajectory positions Micron to capitalize on the AI memory supercycle, a trend that is reshaping the semiconductor industry.

Structural Supply Constraints and Pricing Power

The DRAM and HBM markets are grappling with a historic supply-demand imbalance. As noted by industry analysts, DRAM bit demand grew in the low-20% range in 2025, driven by AI and data center applications, while supply growth remains constrained. This has led to a 30% year-on-year increase in DRAM revenue, with contract prices tripling by late 2025. For Micron, this environment translates into pricing power and margin expansion.

In Q4 2025, Micron's gross margin reached 44.7%, with operating cash flow surging to $5.73 billion-a 27% increase from the prior quarter. The Cloud Memory Business Unit, which accounts for 40% of total revenue, achieved a 59% gross margin, reflecting the profitability of AI-driven demand. These metrics highlight Micron's ability to convert market tailwinds into financial outperformance.

Analyst Optimism and Strategic Expansion

Analysts are increasingly bullish on Micron's long-term prospects. UBS Group recently raised its price target to $400 per share, citing structural supply lags, AI-driven demand, and Micron's leadership in HBM. This optimism is grounded in the company's proactive capital allocation strategy, including a $100 billion megafab in New York slated to begin construction in January 2026. Such investments are critical to addressing the supply-side bottlenecks that are expected to persist through 2026, with DRAM bit shipments projected to grow by 20% in 2026.

The HBM market, meanwhile, is forecasted to reach $54.6 billion in 2026, a 58% year-on-year increase. While SK Hynix maintains a dominant position in HBM3E and HBM4, Micron's aggressive R&D and manufacturing focus on DDR5 and HBM ensure its competitiveness in this high-margin segment.

Risks and Valuation Considerations

Despite the strong fundamentals, some analysts caution that Micron's stock may be overbought, with valuation risks emerging as price targets climb. A pullback could occur if demand for AI infrastructure slows or if supply-side capacity expands faster than anticipated. However, given the current trajectory of AI adoption and the structural constraints in memory production, these risks appear secondary to the long-term growth story.

Conclusion: A Core Holding for the AI Era

Micron's strategic position in the DRAM and HBM markets, combined with its financial resilience and analyst optimism, makes it a compelling core holding for investors. The company is not only navigating the current supply-scarce environment but also building the infrastructure to sustain its leadership in the AI-driven future. As UBS and other analysts raise price targets and industry experts project a $100 billion HBM market by 2028, the time to act is now.