Goldman Sachs: Micron Soars Amid AI Memory Supercycle

The AI-Driven Memory Supercycle Emerges

The burgeoning demand for artificial intelligence (AI) has initiated an unprecedented surge in data center infrastructure development. This rapid expansion, essential for powering advanced AI models and applications, has inadvertently created a critical bottleneck in the supply chain: a severe shortage of memory components. This scarcity is exerting upward pressure on memory prices, a trend that is expected to significantly bolster Micron Technology's performance in its impending quarterly earnings report.

Industry leaders, including Dell, have overtly acknowledged this memory constriction as an escalating challenge for high-end AI server providers. During its third-quarter earnings call, Dell highlighted that elevated memory costs are directly impacting its operational expenses, further compounded by the persistent difficulties in securing adequate memory supplies. Jeffrey Clark, Dell Vice Chairman, underscored the gravity of the situation, stating, “We’re in a very unique time. It’s unprecedented. We have not seen costs move at the rate that we’ve seen. And by the way, it’s not unique to DRAM. It’s NAND.” This sentiment points towards a widespread and fundamental shift in the memory market dynamics.

These powerful market tailwinds, indicative of a nascent memory supercycle, have certainly not gone unnoticed by Goldman Sachs. As a venerable 156-year-old investment firm and arguably one of Wall Street's most respected research institutions, Goldman Sachs possesses a deep institutional memory of past memory supercycle booms and busts, tracing back to Intel's pioneering 1024-bit (1K) Intel 1103 DRAM chip in 1970.

Goldman Sachs' Bullish Stance on Micron

In anticipation of Micron's scheduled quarterly earnings call on December 17th, Goldman Sachs analysts have recently disseminated updated insights. Their outlook is predominantly bullish, projecting financial results that surpass consensus estimates from the broader Wall Street community. Furthermore, these analysts have provided preliminary assessments for the fiscal year 2026, alongside identifying key indicators within Micron's report that are likely to influence its stock valuation.

Deep Dive into Market Dynamics and Micron's Position

Since the groundbreaking introduction of ChatGPT in 2022, which ignited a global frenzy of AI research and development, a veritable gold rush to acquire high-performance computing power has been continuously unfolding. The pervasive adoption of large language models (LLMs) to augment, and occasionally supersede, conventional search functionalities, coupled with companies' intensive efforts in developing and deploying agentic AI applications designed to streamline, assist, and even replace human labor, signifies a monumental technological shift.

The Genesis of AI Demand

The current pace of AI research and development is comparable to the dawn of the internet era; however, the requisite data center horsepower dramatically eclipses anything previously observed. Consequently, major cloud service providers are committing hundreds of billions of dollars to invest in next-generation servers, which are critically dependent on AI-optimized chips such as GPUs, TPUs, and XPUs. Stephanie Aliaga, a strategist at JP Morgan, articulated this escalating need in October, noting, "Training is significantly and increasingly compute-intensive, but early LLM demands were manageable. Today, compute needs are accelerating rapidly, particularly as more models move into production." Nvidia further estimates that sophisticated reasoning models, capable of addressing complex queries, could necessitate over 100 times more compute power compared to single-shot inference tasks.

Memory Market Leaders and HBM Significance

This aggressive push to retrofit data centers with AI-optimized server racks has unequivocally exposed several supply chain vulnerabilities, notably a pronounced shortage in the memory market. This crucial market segment is predominantly controlled by three key players: Samsung, SK Hynix, and Micron (MU). These corporations specialize in the production and marketing of Dynamic Random Access Memory (DRAM), NAND flash, and High Bandwidth Memory (HBM), with HBM being a particularly high-demand memory solution specifically engineered for AI applications.

The imbalance between surging demand and constrained supply has precipitated a sharp increase in spot market memory prices, a trend that is now beginning to permeate contracted supply agreements. This situation has ignited discussions of a burgeoning memory supercycle, further fueled by significant capacity expansion announcements from the major industry participants. Micron, for instance, has strategically divested its consumer memory business, Crucial, to reallocate production capabilities towards the more lucrative and rapidly expanding AI memory market. Sumit Sadana, EVP and Chief Business Officer at Micron Technology, affirmed this strategic pivot: “The AI-driven growth in the data center has led to a surge in demand for memory and storage. Micron has made the difficult decision to exit the Crucial consumer business in order to improve supply and support for our larger, strategic customers in faster-growing segments.” This confluence of heightened demand, tight supply, and escalating memory prices has prompted various Wall Street firms, including Goldman Sachs, to elevate their outlooks for Micron as its quarterly results approach.

Goldman Sachs' Specific Projections and Key Watchpoints

Elevated Expectations for Micron's Performance

Goldman Sachs anticipates a robust report from Micron and projects an optimistic guidance from the company. In a comprehensive research note shared with TheStreet, Goldman Sachs' analysts detailed their projections:

They forecast Micron will achieve third-quarter revenue of $13.2 billion, which comfortably surpasses Wall Street's consensus estimate of $12.7 billion. Furthermore, they expect earnings per share (EPS) of $4.15, exceeding the average estimate of $3.84. The analysts also project a gross margin of 53.6%, notably higher than the consensus of 51.6%. In a broader context, Goldman Sachs has revised its revenue and non-GAAP EPS estimates for 2026 and 2027 upwards by 9% and 19% respectively, attributing these adjustments to the more favorable industry pricing trends observed since their previous update.

Critical Factors for Investors to Monitor

Goldman Sachs emphasizes that investors will scrutinize three pivotal themes within Micron's upcoming report to gauge market sentiment into 2026:

• Sustainability of Pricing Strength: Analysts expect further clarity on whether the current upward trajectory in DRAM pricing can be sustained over the forthcoming quarters.
• HBM Roadmap: The firm anticipates Micron will provide commentary on its near-term market share objectives within the HBM segment, particularly how the forthcoming HBM4 iteration might enhance its competitive standing.
• Gross Margin Path: Additional insights into the company's strategic pathway for gross margin improvement are deemed critical by Goldman Sachs analysts.

Long-Term Outlook and Analyst Consensus

Revised Financial Models and Price Targets

Goldman Sachs' revised 2026 revenue and earnings estimates are notably 5% and 10% above Wall Street's consensus outlook, respectively. This disparity suggests that should Goldman's modeling prove accurate, many analysts will likely be compelled to update their projections to align with the more bullish forecast. Currently, Goldman Sachs' latest financial modeling projects calendar 2026 revenue at $60.8 billion, an increase from a prior estimate of $57.2 billion, and 2027 revenue at $68.9 billion, up from $62.2 billion.

On the profitability front, the analysts project a calendar 2026 EPS of $21.01 and a 2027 EPS of $23.81. This enhanced earnings outlook has also prompted Goldman Sachs to re-evaluate its stock price target for Micron, now raising it to $205 from its previous target of $180.

Catalysts and Risks

Potential catalysts that could further impact these outlooks include:

• Continued successful execution on Micron's HBM roadmap and subsequent market share gains against key competitors such as Samsung and SK Hynix.
• A substantial increase (exceeding current expectations) in HBM content integration for AI accelerators.
• Conversely, continued signs of CXMT (Changxin Memory Technologies) gaining DRAM market share could negatively impact pricing dynamics.

Broader Wall Street Sentiment

Goldman Sachs is not an isolated voice in expressing a bullish sentiment towards Micron. Morgan Stanley, in a research note shared with TheStreet, also conveyed a highly optimistic perspective. Morgan Stanley's Moore remarked, “We are entering uncharted territory, as we have a 2018 style shortage forming but from a much higher EPS starting point; we expect serial upwards revisions to continue.” He further contextualized the current market by stating, “Since we upgraded MU to OW a little over a month ago, DDR5 spot pricing has tripled and in a historic sense, to find this kind of move in DRAM pricing you’d likely have to go back to the cycles of the 1990s.” This historical comparison underscores the extraordinary nature of the current memory market surge.

Conclusion

In conclusion, the confluence of exploding AI demand and subsequent memory supply constraints is unequivocally driving a powerful memory supercycle. Goldman Sachs, alongside other prominent Wall Street firms, is taking a decidedly bullish stance on Micron Technology, anticipating robust earnings performance and significant long-term growth. Investors are advised to closely monitor key metrics such as pricing sustainability, HBM roadmap execution, and gross margin trajectory, as these will be instrumental in shaping Micron's trajectory in this dynamic, AI-powered landscape.