Morningstar said AI supply deals are “not ironclad” and memory chips still “trade like commodities.”
- Morningstar raised Micron’s fair value estimate to $850 from $455 after “eye-watering” results.
- Morningstar expects an “unprecedented cyclical upswing” through 2028, followed by a 50%-plus revenue drop across 2029-2030.
- The firm said its bearish call is “not a call on AI demand,” but a warning about a future “glut of supply.”
Shares of Micron Technology (MU) slipped 4% premarket on Friday as investors weighed a stark warning that the AI memory boom could eventually reverse sharply, even after the chipmaker delivered a blowout quarter and guidance far above estimates.
MU stock has surged 25% so far this month, on pace to record its third straight month in the green.
MU Faces 2029 Downcycle Risk
In a fresh note, Morningstar raised Micron’s fair value estimate to $850 from $455 after “eye-watering” results, but said that shares still look overvalued. The title of the note said: “What Goes Up Must Come Down … Eventually.” Morningstar said Micron’s AI-driven memory pricing upswing is “ballooning results,” with revenue rising 346% year-over-year to $41 billion and non-GAAP gross margin expanding to 85% from 39% a year ago.
Morningstar expects Micron to benefit from an “unprecedented cyclical upswing” through 2028, before revenue falls more than 50% across 2029 and 2030 as pricing normalizes and new supply comes online. “Our bearish call is not a call on AI demand,” Morningstar said, calling the risk a future “glut of supply” that could bring memory prices “back down to earth.”
Micron Bulls Face Contract Warning
Morningstar also pushed back on the idea that long-term AI supply deals have permanently changed Micron’s cycle. The firm said bulls may argue that high prices are now “structural,” supported by parabolic AI infrastructure demand and long-term agreements. But it warned those deals are “not ironclad” in a downturn.
“We believe these new, stronger long-term agreements help hedge against the harshness of a downturn, but don’t prevent it,” Morningstar said.
Memory Chips Still Trade Like Commodities
Morningstar said that the bigger issue is not whether AI demand stays strong, but whether supply eventually catches up too quickly: “The key question for investors is when this cycle peaks and how far it falls thereafter,” the firm said, adding that Micron’s exposure still comes from the basic supply-demand mechanics of memory chips.
“For us, it’s all about the supply/demand ratio,” Morningstar said. The firm said memory chips “trade like commodities,” leaving Micron vulnerable to downcycles that can compress shipments, prices and profits. Even if AI demand remains high, Morningstar said an influx of supply could still pressure pricing after the peak. “For long-term investors, we worry about a steep downcycle at the end of the decade,” the firm said.
How Do Retail Traders Feel About MU?
On Stocktwits, retail sentiment for MU was ‘extremely bullish’ amid ‘extremely high’ message volume.
A Stocktwits poll asked traders for their 12-month Micron target. Of 3,800 votes, 67% picked $1,500 or higher, 12% chose $1,250 to $1,499.99, 4% selected $1,000 to $1,249.99 and 17% picked under $1,000.
MU stock has surged 856% over the past year.
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