U.S. Semiconductors & Semiconductor Capital Equipment: Making the Case for Another Leg Higher in the Memory Trade: Performing in a Contract Year; U/G SNDK to OW, PT to $2,300

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U.S. Semiconductors & Semiconductor Capital Equipment: Making the Case for Another Leg Higher in the Memory Trade: Performing in a Contract Year; U/G SNDK to OW, PT to $2,300

Barclays | U.S. Semiconductors & Semiconductor Capital Equipment

of prior cycles. In NAND, SNDK has capitalized on the current state of the market and laid out

New Business Models (NBMs) with clear RPO and financial guarantees loaded with

prepayments. We see a similar path for MU, which recently announced a 5yr Strategic Customer

Agreement (SCA), to secure contracts with a range of financial hooks and guarantees. We expect

the company to talk more about this on their earnings call. The financial hooks embedded in

these structures will begin to shift these companies away from commodity cyclicality and

toward something closer to a recurring revenue profile. Over the next couple of years, as

LTA/NBM/SCA penetration deepens we see the potential for a re-rating catalyst, as investors

apply higher multiples to businesses that look less like commodity suppliers and more like

critical infrastructure with greater visibility to both demand and revenue.

We believe that NAND contract floor pricing is locked in at Q1 levels making the argument about

sustainability much easier when contemplating an absolute downside scenario. We think this

will look similar in DRAM. For SNDK, while holding pricing and COGS flat in our forecast with bits

up HT% Y/Y, we see a NAND GM profile in the high 70s% and an implied CY28 EPS of ~$165. We

view that as a proxy floor over this period and therefore think due to visibility and the

contractual potential for pricing upside that we should apply a higher multiple. We have little

history for stand-alone NAND assets but use 8x for a $1,320 floor, which is ~17% downside to the