Analysts have raised the target prices for Micron and SanDisk to 700 USD and 1350 USD, respectively. As the SaaS model for software comes under pressure, memory manufacturers are securing revenue and profits through long-term contracts, giving rise to a 'reverse SaaS' mechanism.
The expansion of AI computing power is reshaping the profit structure of the semiconductor industry, with memory manufacturers emerging as the most direct beneficiaries. Analyst Ben Reitzes from Melius Research predicts that as AI applications continue to expand, memory demand will remain strong over the long term and could drive changes in the industry's business model.
He pointed out that, unlike the software industry, chip companies are gaining support from higher valuations, especially $Micron Technology (MU.US)$and$SanDisk (SNDK.US)$ manufacturers, which have entered a phase of value reassessment and have been given a 'buy' rating for the first time.
In Reitzes' view, the traditional SaaS model in software, where customers are charged per seat, is under pressure. Clients are increasingly shifting their budgets toward AI infrastructure and reducing long-term software contract commitments, forcing software companies to adopt less stable pay-per-use models.
By contrast, the memory industry may see the emergence of a mechanism akin to "reverse SaaS," where revenue and gross margins are locked in through long-term agreements. He believes core AI suppliers, such as those in memory and optics, are better suited for this model. Although specific contract details are typically confidential, the importance of such agreements is rising as industry bargaining power shifts.
Based on the assumption that clients are willing to commit to multi-year procurement contracts, he forecasts that valuation multiples for Micron Technology and SanDisk could double or even increase several-fold. If agent-based AI and physical AI further boost demand, upward revisions to valuations will be a logical outcome.
From a market performance perspective, the share prices of both companies clearly reflect this trend. Micron Technology’s stock has reached an all-time high, with its market capitalization nearing $600 billion, while SanDisk’s market cap has surpassed $157 billion, recording cumulative gains of over 3000% in the past year.
Reitzes set a two-year target price of $1,350 for SanDisk shares, implying approximately 27% upside from Monday’s levels, and $700 for Micron Technology shares, indicating about 34% potential growth.
The core driver of surging demand lies in the construction of AI infrastructure. High Bandwidth Memory (HBM) is directly integrated into $NVIDIA (NVDA.US)$and$Advanced Micro Devices (AMD.US)$ 's advanced GPUs, which provide computational power for mainstream AI data centers.
HBM essentially consists of multiple layers of dynamic random access memory (DRAM), enabling high-speed temporary data processing that allows GPUs to perform large-scale parallel computations. As HBM demand soars, significant reallocation of industry resources is taking place.
The world's three major memory manufacturers, including Micron Technology, $Samsung Electronics Co., Ltd. (SSNLF.US)$ and SK Hynix, have redirected a significant portion of their DRAM production capacity to HBM manufacturing. This has led to a tightening supply of general-purpose memory and a substantial rise in prices. According to Counterpoint Research, the DRAM market has achieved approximately 30% quarter-on-quarter growth for two consecutive quarters.
Price increases are being passed on to end users. Gartner forecasts that personal computer prices will rise by 17% by 2026, while the cost of solid-state drives for PCs has already doubled or tripled compared to December of last year.
As a major NAND storage supplier, SanDisk is also benefiting from the surge in data storage demands driven by AI servers. NAND is a type of flash memory technology that retains data even after power loss, and its demand growth trajectory is similar to that of HBM.
Driven by both demand and supply factors, procurement patterns have also changed. An increasing number of buyers are signing long-term contracts ranging from three to five years to ensure a stable supply of memory. For instance, $Broadcom (AVGO.US)$ has secured memory resources until 2028.
Bernstein analyst Mark Newman pointed out that upward revisions to earnings forecasts are accelerating, primarily driven by the robust increase in memory prices. Meanwhile, manufacturers are also inclined to sign long-term agreements to support capacity expansion decisions.
From the supply side, the production expansion cycle is lengthy, typically requiring about two and a half years. Micron Technology has invested $24 billion in expanding its NAND plant in Singapore and is advancing the construction of new wafer fabs in New York State and Idaho in the United States; SK Hynix has also launched its first packaging plant in Indiana, USA, while expanding capacity in South Korea.
Editor/Joe