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Key Takeaways
- Memory stocks rebounded on Monday after sliding last week amid concerns about the durability of AI spending and efforts by tech giants to control their memory costs.
- Morgan Stanley analysts on Monday argued the sell-off had created “a strong entry point” to stocks such as Micron and Sandisk that, despite double digit declines in recent weeks, are still worth at least three times what they were at the start of the year.
Chip stocks rose on Monday as investors bought the dip following last week’s rout.
The PHLX Semiconductor Index (SOX) was up nearly 2% in recent trading, led higher by shares of Marvell (MRVL) and Micron (MU), which both gained about 5%. Memory stocks that have slumped in recent weeks rose, with Sandisk (SNDK) and Western Digital (WDC) each advancing more than 4%.
The SOX index fell 10% last week as the memory rally that powered markets to record highs throughout the second quarter cooled off. Chip investors were also rattled late in the week when Chinese start-up Moonshot AI released a new open-source model that rivals the capabilities of leading U.S. models from Anthropic and OpenAI. The model revived concerns about runaway spending on AI infrastructure and tech giants’ ability to recoup their enormous investments.
Why This Matters to Investors
Monday’s rebound signaled investors still have an appetite for the memory stocks that have been the face of the AI rally through most of 2026.
Morgan Stanley analysts argued in a note on Monday that the recent sell-off “has created a strong entry point” to stocks benefiting from chip shortages “that show no signs of abating.” The analysts estimate memory prices are up 25% this quarter, a slowdown from prior quarters, but one that they argue was “inevitable” and arguably necessary to prevent demand destruction.
Booming demand for memory and data storage equipment from AI data centers has vastly outpaced supply over the past year, driving up prices and costs across the tech sector. Memory suppliers are increasing their manufacturing capacity to meet demand while buyers are signing multi-year purchasing agreements to lock in supply at a predictable price.
Some investors worry that added capacity and long-term agreements will weigh on prices and constrain suppliers’ explosive earnings growth. Wall Street also fears prices have risen so much and the shortage is so acute that memory buyers are “de-speccing,” or re-engineering products to reduce their memory needs. For example, Nvidia is believed to have reduced the memory content of its racks “fairly materially,” according to Morgan Stanley.
The firm’s analysts on Monday acknowledged that purchasing agreements would “cap the amplitude of the cycle,” but they argue the agreements are a long-term positive for the stocks. “Several years of earnings that are climbing from the current run rates are likely more conducive to high valuations than a single very strong year,” the analysts wrote. And though de-speccing efforts “could dampen pricing at the margins,” the fact that buyers are going to the effort of re-engineering around memory speaks to its importance, and thus the durability of demand.
While Morgan Stanley believes AI accelerator suppliers such as Nvidia (NVDA) and Broadcom (AVGO) offer investors the best risk-reward opportunity, “memory is catching up quickly” given the severity of the recent sell-off. Shares of Sandisk and Micron, the memory rally’s standouts, have shed a respective 39% and 27% of their value since hitting record highs late last month. Still, the stocks are up 500% and 200%, respectively, this year.
Read the original article on Investopedia
