S&P Global upgrades Micron rating on AI memory demand outlook

S&P Global has raised its rating on Micron Technology Inc. (NASDAQ:MU) and its debt from 'BBB' to 'BBB+' on Wednesday, predicting a more stable future for the memory semiconductor sector. The agency's confidence in AI-driven demand for memory semiconductors through 2028 has increased, with strong demand and contractual customer orders expected to bolster Micron's financial position.

Analysts believe the supply-demand imbalance will persist beyond 2027, even after new capacity is added in 2028, as memory demand is projected to exceed supply through 2030. Micron's gross margin has expanded to 85% from 39% a year ago, and the company anticipates approximately half of its revenue to be covered by strategic customer agreements.

This arrangement includes price floors above prior cycle peaks and caps near current levels, with $18 billion in unrestricted cash customer deposits expected. S&P Global Ratings views a downturn in AI demand for high bandwidth memory as unlikely, given its belief that demand will far outpace supply through 2028. The agency could downgrade its outlook if AI infrastructure or conventional IT spending drops, or if Micron opts for acquisitions that lead to higher leverage.

The rating could be upgraded in the next 24 months if long-term demand trends for AI memory products remain strong and there is more certainty about strategic customer agreements reducing industry volatility.