Morgan Stanley believes the market is significantly underestimating the current memory chip shortage. Driven by the AI super-cycle, traditional cyclical valuation frameworks are no longer applicable, and Micron Technology is at a sweet spot of dual expansion in both profitability and valuation multiples. According to reports, on February 11, a team of Morgan Stanley analysts directly and sharply raised their price target for Micron from $350 to $450 in a research report, maintaining an "Overweight" rating. The core logic behind this move is simple and direct: as long as artificial intelligence demand remains strong, previously perceived risks such as HBM4 mass production challenges, the impact of Chinese memory chip capacity, and overheated capital expenditures are all considered irrelevant noise. For investors, this report highlights a reality overlooked by the market: the memory chip supply shortage has spread to every end market, with pricing power firmly in the hands of sellers. Morgan Stanley predicts Micron's calendar year 2026 earnings per share will surge to over $52. Driven by the AI super-cycle, the stock is experiencing simultaneous expansion in profitability and its valuation multiple. Widespread Shortages Ignite Pricing Power, Leading to Significant Earnings Revisions The market has clearly underestimated the tightness of the current memory chip market. According to Morgan Stanley's research, pricing for both DRAM and NAND is continuing to rise into the first and second quarters of 2026. Although Micron's official guidance for its second fiscal quarter implies a 37% sequential revenue increase, this is underpinned by an approximate 30% quarter-over-quarter increase in average selling prices. This is seen as merely a conservative baseline, as competitor data is even more striking: guidance from SanDisk indicates its NAND ASP surged by 60% sequentially, while teams covering Samsung and SK Hynix model forecasts predict conventional DRAM price increases of 48% and 55% respectively in Q1. This price surge is translating directly into remarkable profitability. Morgan Stanley explicitly states that Micron's profitability is moving to a higher level, with an estimated CY26 EPS of $52.53. Even if Micron chooses not to update specific numerical guidance in its earnings reports, any stock price pullback due to a lack of such guidance—provided market conditions are confirmed to be better than expected—should be viewed as an excellent buying opportunity. The current consensus expects Micron's earnings to peak around $12 later in 2027, a forecast Morgan Stanley views as extremely conservative. In reality, Micron's profit levels are likely to consistently exceed consensus models over the next year and a half. Valuation Logic Reshaped: AI Premium and Through-Cycle Earnings The primary point of divergence among investors currently lies in the valuation multiple. Morgan Stanley argues that it is a mistake to evaluate Micron based on traditional cyclical thinking. The current stock price implies a price-to-earnings ratio of just 8 times based on a $48 EPS forecast, while current gross margins are already 10 to 15 percentage points higher than the peak of the last cycle. If viewed as a cyclical stock, this valuation is not only reasonable but arguably extremely cheap, as it is closer to 5 times peak earnings, compared to 10 times at the peak of the 2021 cycle. Morgan Stanley has recalibrated its valuation model, raising its estimate for "through-cycle EPS" from $14 to $18. While this figure is significantly higher than historical averages, it remains less than half of the expected earnings for the next 12 months. Based on the unique tailwind from AI and the HBM opportunity, Morgan Stanley maintains a 25x P/E multiple for Micron. Multiplying the $18 through-cycle EPS by the 25x valuation leads directly to the new $450 price target. Furthermore, Micron's ability to generate approximately $10 billion in cash per quarter means it can produce cash equivalent to 10% of its current enterprise value within a year, significantly improving its balance sheet. Unbridgeable Supply-Demand Gap: $200 Billion in New Demand The foundation of this super-cycle is a structural supply-demand imbalance driven by AI. Producer inventory on balance sheets is extremely low, and customers are struggling to secure sufficient supply even when willing to pay a premium. On the supply side, wafer fab output growth is exceptionally slow; Morgan Stanley expects year-over-year wafer start growth, including from CXMT, SK Hynix's M15, and Samsung's P4L, to be only 7% by the end of 2026. In contrast, demand-side growth is explosive. Nvidia anticipates adding $30 billion in quarterly revenue from now until the end of 2026, AMD's Data Center segment expects quarterly revenue to double to $10 billion, and Broadcom's semiconductor business is projected to double to around $25 billion. Including incremental demand from Marvell and Intel, the entire memory industry needs to accommodate nearly $200 billion in annualized new revenue demand over the next 12 months. This figure is larger than the entire logic semiconductor market in 2020, and the high capital intensity of HBM further restricts the ability of DRAM suppliers to catch up. Therefore, selling the stock solely due to concerns about supply growth in the second half of 2027 appears premature. Debunking the "Bear" Narrative: China Capacity and HBM4 Risks Dismissed Regarding market concerns about potential impacts from Chinese memory chip companies, Morgan Stanley believes these fears are exaggerated. As for HBM4 progress, while there has been recent market noise, Morgan Stanley maintains its assessment. Micron stated as early as its December earnings report that it had received qualification and expects to mass produce HBM4 in the second calendar quarter of 2026, a timeline that remains unchanged. Even if Micron encounters unforeseen difficulties in HBM4 production ramp-up, HBM3e remains the market mainstream with a broad ASIC customer base, and this would not negatively impact earnings. The early major production share for Nvidia's HBM4 has historically gone to SK Hynix, which is already anticipated and does not constitute a fundamental negative for Micron.