Memory Trade: Cyclical or Durable Growth?

Amid a flurry of AI CAPEX spending from tech giants, Micron (MU) and SanDisk (SNDK) have transformed into two of the best-performing stocks thus far in the AI boom. In fact, over the past two years, Micron has gained 953% while SanDisk shares have delivered a mind-boggling 3,398.70% return.

The two stocks are closely correlated, though they each own different parts of the AI memory market. Micron manufactures DRAM (for working memory) and high-bandwidth memory (HBM) for AI accelerators. On the other hand, SanDisk focuses on NAND flash storage, or memory chips that can retain data without power.

Memory Stocks Base Despite Micron Earnings Windfall

Despite a blowout earnings report from memory leader Micron last week, fresh all-time highs in the Nasdaq 100 Index ETF (QQQ), and a massive guidance raise from AI-leader Marvell Technologies (MRVL), SanDisk and Micron, the two AI memory leaders have been surprisingly quiet recently. Both stocks have been oscillating in base structures that began in the early summer.

What Has Held Memory Stocks Back?

The main reason memory stocks have lagged recently is that skeptics believe AI memory components are a cyclical commodity rather than a durable growth force. Traditionally, this notion has been true. Higher memory prices have led to bigger investments and supply gluts among memory makers like SanDisk and Micron. However, memory use in legacy computing is completely different from its use in AI. In legacy computing, memory was merely a supporting player. Conversely, in AI, memory is more than just an add-on, it’s a massive bottleneck. Without high-end memory chips, Agentic AI and Large Language Models (LLMs) are impossible to train.

DA Davidson Upgrade: The Spark the Memory Trade Needs

Tuesday, DA Davidson’s Gil Lauria raised his Micron price target from $2,100 to a street high of $3,000. Lauria added:

“We attended investor meeting with Samir Patodia, Sr. Director of IR, and Jeff Grattan, Director of IR, which allowed us to get an updated sense for investor sentiment and questions. We concluded that investors are early in their journey of understanding MU’s value and believe that journey will lead them to assigning a far higher multiple.”

Tuesday’s price action suggests that the massive price target hike may be the spark the memory trade needed. Despite a blood red market, SanDisk and Micron shares bucked the trend and each rose ~4%.

Memory Supply Remains Tight

Regardless of one’s opinion on the cyclicality debate, memory supply constraints are expected to persist through 2027 (at a minimum).  Additionally, Wall Street analysts expect Micron earnings to explode by 699% next quarter.

Also, Micron’s valuation remains extremely cheap with a P/E of just 13.85x.

Bottom Line

While skeptics continue to view memory providers through a traditional cyclical lens, structural demand from the AI boom has transformed the industry landscape.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research