Micron Technology (MU): A High-Conviction Buy Amid Memory Chip Scarcity and AI-Driven Demand

The global semiconductor industry is undergoing a seismic shift, driven by the explosive growth of artificial intelligence (AI) infrastructure. At the heart of this transformation lies a critical bottleneck: the undersupply of DRAM and NAND memory chips, which are indispensable for training and deploying large-scale AI models. As demand for high-bandwidth memory (HBM) and advanced server memory surges, traditional memory markets are experiencing unprecedented pricing power and supply constraints. For investors, this creates a compelling case for Micron Technology (MU), a leader in both DRAM and NAND, which is poised to capitalize on these dynamics.

Supply-Demand Imbalances: A Structural Shift

The DRAM market is witnessing a stark imbalance between supply and demand. According to a report by Longbridge, server DRAM prices surged by 28-33% in Q4 2025, driven by historically low inventory levels at suppliers and the reallocation of production capacity toward HBM and AI-optimized modules. SK Hynix, a key industry player, has warned that commodity DRAM supply growth will lag demand through 2028, as manufacturers prioritize fulfilling AI server orders according to a WCCF Tech report. This structural undersupply is not a temporary blip but a multi-year trend, with PC and smartphone manufacturers now competing for dwindling supplies.

The NAND market is following a similar trajectory. As stated by Delkin, demand for NAND is projected to grow by 18% in 2026, fueled by large tech firms securing production capacity for 2027. Contract wafer prices for NAND spiked by 10–15% in October 2025, reflecting the intense pressure from AI and enterprise SSD demand. Industry experts caution that NAND shortages could persist for a decade, as AI infrastructure expansion continues to outpace supply-side adjustments according to Delkin's forecast.

Pricing Power and UBS's Optimistic Outlook

These supply constraints are translating into robust pricing power for memory suppliers. UBS has raised its price target for Micron Technology to $295 from $275, maintaining a "Buy" rating, citing stronger-than-expected contract pricing trends. The firm forecasts a 35% quarter-over-quarter (QoQ) increase in DDR memory prices for Q4 2025, up from a prior estimate of 21%, while NAND pricing is expected to rise by 20% QoQ according to a Yahoo Finance report. These gains are anticipated to persist into 2026, with DDR pricing projected to climb another 30% in Q1 2026 and NAND prices rising by 20% according to CNBC analysis.

UBS further highlights Micron's potential for long-term margin expansion, forecasting earnings per share of approximately $38 in 2027. This optimism is grounded in the prolonged undersupply of memory chips, which is expected to sustain elevated pricing and profitability. For context, Micron's current valuation appears undervalued relative to its projected cash flows, given the structural tailwinds in AI-driven demand.

Strategic Positioning in the AI Infrastructure Boom

Micron's dual leadership in DRAM and NAND positions it uniquely to benefit from the AI infrastructure boom. As AI models grow in complexity, the demand for high-performance memory-particularly HBM-will accelerate. Micron has already ramped production of HBM, aligning with the needs of hyperscalers and cloud providers. Meanwhile, its NAND business is securing long-term supply agreements with industrial and embedded customers, who are now forecasting requirements through 2027 to avoid disruptions according to Delkin's analysis.

The company's ability to navigate the transition from commodity memory to high-margin, AI-optimized products further strengthens its competitive moat. With capital expenditures focused on advanced nodes and capacity discipline, Micron is well-positioned to outperform peers in both pricing and margin resilience.

Conclusion: A High-Conviction Buy

The confluence of AI-driven demand, supply-side constraints, and Micron's strategic execution creates a rare investment opportunity. UBS's raised price target and EPS forecasts underscore the market's confidence in the company's ability to capitalize on these dynamics. For investors with a medium- to long-term horizon, Micron represents a high-conviction buy, offering exposure to a structural inflection in the semiconductor industry. As the AI revolution accelerates, the scarcity of memory chips will remain a defining theme-one that Micron is uniquely equipped to monetize.