Memory chip stocks have had an extraordinary run this year. SanDisk (SNDK) is up more than 500% year-to-date. Micron (MU) is up more than 200%. Both have pulled back from their highs, but the case for more upside stays strong.
More upside ahead
There is still more to be had in these stocks. If you believe in the cycle theory, these companies move up and down in what people call boom and bust. At a peak, margins usually run about 55% to 65%. Right now some of these companies sit at about 80% to 85%. That is unprecedented for a commodity item like DRAM or memory to reach at this point in the cycle. The CEO of Micron (MU) and the CEO of SanDisk (SNDK), which reported earnings a couple of weeks ago, both say there is plenty of demand in the pipeline. Once they get supply and inventory in hand, the market should come into better balance, and the strong period could last until 2029 or 2030.
Micron's backlog
The price target on Micron (MU) is $1,500, roughly 50% above where it trades now. The driver is the backlog. Micron cannot keep up with the demand it has. Orders sit on the books that the company cannot get to, and that is ideal for a rising stock price. Micron can produce only about 50% of what it has booked for needs. That points to 2027 being another strong year for Micron.
How long the shortage lasts
Elon Musk made comments to Sanjay Malhotra, the CEO of Micron (MU), saying something like he wanted to buy every single piece of inventory Micron has and give nothing to other customers. That was partly a joke, but Malhotra said every one of his customers has said the same thing - they want to grab all the inventory on hand, keep it, and use it for their own products.
The cycle can last a bit longer. It is not a different cycle, just extended further than most people expected. Once we reach 2030 or 2031, a new wave of AI arrives, and we will learn more about how important memory is to AI. The CEOs of SanDisk (SNDK), Micron (MU), Seagate (STX), and Western Digital (WDC) all say memory is critical for AI going forward. If AI is part of the future, and it is hard to argue it is not, then conditions today differ from the past.
The single best name
The top pick in the memory space is SK Hynix (000660.KS). It holds 50% of the HBM market, which is high-bandwidth memory, and it is the winner right now. Everyone thinks of Micron (MU), but the South Korean company that owns half the HBM market should not be forgotten.
On the session, SK Hynix traded a bit higher, Micron (MU) was down about 0.4%, and SanDisk (SNDK) was down marginally.
