Memory shortage drives prices up, pre-performance of Goldman Sachs Group, Inc. is bullish on Micron Technology, Inc. (MU.US): Q3 performance is expected to greatly exceed expectations.

The surge in data center infrastructure investment to support artificial intelligence has led to a shortage of memory and subsequently, soaring prices. This backdrop may provide support for the upcoming quarterly earnings report of Micron Technology, Inc. (MU.US). This week, analysts from Goldman Sachs Group, Inc. provided their latest views ahead of Micron's quarterly earnings call scheduled for December 17. The analysts offered a fundamentally bullish outlook, predicting that its performance will exceed the Wall Street consensus. They also provided preliminary views on the potential scenario for 2026, and detailed key focus points in Micron's earnings report that could affect its stock price. Goldman Sachs Group, Inc. analysts released their forecast ahead of Micron Technology, Inc.'s third-quarter revenue reaching $13.2 billion, surpassing the Wall Street consensus of $12.7 billion, and expecting earnings per share of $4.15, higher than the average expectation of $3.84. The memory bottleneck has been identified as an increasingly severe problem faced by high-end AI server suppliers including Dell Technologies, Inc. Class C (DELL.US). Dell Technologies, Inc. Class C stated during their third-quarter earnings call that the rise in memory prices is increasing their costs, and memory shortages are posing challenges. Dell Technologies, Inc. Class C Vice Chairman Jeffrey Clarke stated: "We are in a very unique time. This is unprecedented. We have never seen costs rise at such a rate. And not just DRAM, NAND as well." AI demand ignites the memory market Since the release of ChatGPT in 2022, sparking a boom in artificial intelligence research and development, a "gold rush" for high-performance computing capabilities has begun. Almost everyone is using large language models to complement, and sometimes even replace traditional searches. Most companies are also deeply developing and implementing AI agent applications that can simplify processes, provide assistance, and even replace workers in some cases. The pace of AI development rivals that of the early days of the internet; however, the data center computing power required is far beyond any level seen before. Therefore, the largest cloud service providers are investing billions of dollars in new generation servers driven by AI-optimized chips such as GPUs, TPUs, and XPUs. Morgan Stanley strategist Stephanie Ariagha wrote in October: "The training process is extremely and increasingly compute-intensive, but early LLM demand was manageable. Now, compute demand is rapidly accelerating, especially as more models go into production. NVIDIA Corporation estimates that the compute needed for inference for models answering complex questions may be over 100 times that needed for a single inference." Rushing to optimize server racks with AI has exposed a series of supply bottlenecks, including shortages in the memory market dominated by Samsung, SK Hynix, and Micron. These companies sell DRAM (dynamic random-access memory), NAND flash memory, and HBM (high-bandwidth memory), the latter being high-demand memory designed specifically for AI applications. Supply shortages have led to a surge in memory prices in the spot market, which is beginning to transmit to contract supply prices. Therefore, discussions about the beginning of a memory supercycle have started to emerge, partly due to major manufacturers including Micron announcing large-scale capacity expansion plans. Micron recently exited the consumer memory market to free up more memory capacity for the AI market. Sumit Sadana, Executive Vice President and Chief Business Officer of Micron Technology, Inc., stated: "The growth in data center AI is driving increased demand for memory and storage. Micron made the difficult decision to exit the Crucial consumer business to improve supply and support our large strategic customers in faster-growing areas." Rising demand, tight supply, and soaring memory prices have prompted Wall Street institutions including Goldman Sachs Group, Inc. to raise expectations for Micron. Micron is expected to announce quarterly performance in mid-month. Goldman Sachs Group, Inc. releases pre-earnings predictions for Micron Goldman Sachs Group, Inc. has not overlooked the tailwinds behind the emerging memory supercycle. The venerable 156-year-old investment bank, revered as one of the most respected research institutions on Wall Street, has witnessed the rise and fall of multiple memory supercycles since Intel Corporation introduced the first mass-produced semiconductor memory chip - the 1024-bit (1K) Intel 1103 DRAM chip, in 1970. Goldman Sachs Group, Inc. expects Micron to deliver strong earnings, providing optimistic guidance for its performance. In a research report, Goldman Sachs Group, Inc. analysts wrote: Pricing advantages should drive better-than-expected quarter earnings, laying the foundation for strong performance in 2026. Goldman Sachs Group, Inc. analysts expect Micron's third-quarter revenue and earnings per share to exceed market average expectations. They also anticipate a gross margin of 53.6%, higher than the Wall Street consensus of 51.6%. Overall, ahead of Micron's earnings release, Goldman Sachs Group, Inc. raised its revenue and non-GAAP earnings estimates for 2026 and 2027 by 9% and 19%, respectively, to reflect more positive industry pricing trends since their last update. Goldman Sachs Group, Inc. expects investors to focus on three key themes in Micron's earnings report to assess the market sentiment for 2026: 1. Sustainability of pricing advantages - Goldman Sachs Group, Inc. expects to gain "further information on whether the current increase in DRAM prices can continue over the next few quarters". 2. HBM roadmap - Goldman Sachs Group, Inc. anticipates the company to "comment on its recent share targets for HBM and how much HBM4 will improve the company's position". 3. Gross margin trajectory - their analysts believe that "additional commentary on the future development path of gross margins will be important". What is the future outlook for Micron? Goldman Sachs Group, Inc.'s revised 2026 revenue and profit expectations are 5% and 10% higher than the Wall Street consensus, indicating that if Goldman Sachs Group, Inc.'s model is correct, many analysts will be forced to catch up and raise their forecasts. Currently, Goldman Sachs Group, Inc.'s latest data model predicts revenues of $60.8 billion for 2026 (up from $57.2 billion previously) and $68.9 billion for 2027 (up from $62.2 billion). In terms of earnings, their analysts expect calendar year earnings per share of $21.01 for 2026 and $23.81 for 2027. The new profit outlook from Goldman Sachs Group, Inc. has also prompted a reconsideration of their price target. They now believe Micron's stock price could rise to $205, higher than the previous target of $180. Goldman Sachs Group, Inc. listed the following catalysts that may impact the outlook: * "Continued execution on the company's HBM roadmap and gaining share relative to Samsung and SK Hynix; * A significant increase in HBM content in AI accelerators (beyond current expectations); * Signs of continued market share gain for CXMT in the DRAM market, negatively impacting pricing dynamics." Goldman Sachs Group, Inc. is not the only Wall Street institution bullish on Micron's potential for significant growth. Morgan Stanley also expressed a bullish sentiment in a research report. Morgan Stanley's Moore wrote in the research report: "We are entering uncharted territory as shortages similar to those in 2018 are forming, but the starting point for EPS is much higher; we anticipate continued upward revisions. Since we upgraded Micron to Neutral about a month ago, DDR5 spot prices have doubled, historically to find this kind of increase in DRAM prices, you may have to go back to the cycles of the 1990s."