RBC Capital believes the market is not fully recognizing how Strategic Customer Agreements (SCAs) could change Micron Technology, Inc. (NASDAQ:MU)’s earnings profile. The brokerage reiterated an Outperform rating and a $1,500 price target on Micron on September 18.
According to the brokerage, AI demand, memory-intensive agentic AI workloads, and constrained supply are creating a favorable setup for Micron. RBC noted that at roughly 6.5 times forward earnings, Micron stock is barely pricing in the value of the company’s SCAs.
The investment case for Micron is no longer based solely on strong memory pricing. If the customer agreements make a larger portion of Micron’s revenue more predictable, they could support a higher valuation than investors have historically assigned to cyclical memory stocks.
Micron isn’t the only memory company benefiting from the AI boom. One AI-focused memory stock has surged more than 650% this year, drawing renewed attention to the sector. Here’s why Micron investors may want to pay attention.
Bull Case: SCAs Could Make Micron’s Earnings More Durable
Micron Technology, Inc. has signed 16 SCAs covering roughly 20% of its DRAM volume and one-third of its NAND volume over their contract periods. The agreements are generally structured as take-or-pay commitments.
The largest agreements include pricing floors and ceilings. Micron expects the floor pricing on those contracts to generate stronger gross margins than the company’s peak quarterly margins in previous memory cycles.
The size of these contracts is significant. Micron says that 14 of the 16 SCAs carry around $100 billion of cumulative minimum-price revenue over their remaining terms. The company expects about $22 billion in customer deposits and related financial commitments under existing SCAs. At least half of Micron’s revenue could fall under SCAs once planned agreements are completed, management said.
The bull case rests on Micron leveraging its SCAs to turn this extraordinary cycle into something longer lasting. If investors become convinced that the company can maintain stronger margins through the next memory cycle, the current forward PE multiple leaves room for expansion.
Bear Case: The Memory Cycle Still Sets the Ceiling
Memory prices can fall when supply catches up with demand, and not every strategic agreement eliminates that risk.
Micron Technology, Inc. says a minority of its SCAs have no fixed pricing or price bands. So those contracts are subject to market conditions. The company has also cautioned that customer demand, inventory strategies, and end-market conditions can change.
The bear case therefore hinges on investors continuing to view Micron’s earnings as cyclical memory stock despite the SCAs.
That means the durability of current earnings is the critical variable in RBC’s valuation argument. A low forward P/E can signal opportunity if earnings remain strong. But it can also be misleading if peak-cycle profits normalize.
Micron’s Q4 earnings report, set for September 30, will provide an important test of the thesis. Investors will be watching to see whether pricing, margins, and management’s outlook support the strong earnings environment.
Hedge Funds Moving in as Shorts Scale Back
Insider Monkey’s database shows growing elite investor backing for Micron Technology, Inc.. There were 184 funds holding Micron stock at the end of Q2, up from 154 in Q1 and 137 in Q4. As hedge funds pile in, short sellers are dialing back. Short interest stands at 2.64% of the float, down more than 1% from the previous reading.
Micron’s valuation debate comes down to whether the SCAs can enable the company to extend the extraordinary AI-era earnings runway. RBC’s price target assumes the market will eventually value Micron on improved earnings visibility rather than the historical memory cycle.
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