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- Memory stocks have been volatile, but Morgan Stanley says it's a dip-buying opportunity.
- Analysts at the bank say concerns that often derail an investment cycle are less relevant to memory.
- Among chips, Morgan Stanley is most bullish on Nvidia and Broadcom, but memory makers are catching up.
Morgan Stanley says it's worth sticking through the roller coaster ride in memory stocks, and that any selling creates a good entry point for investors.
Memory stocks have seen huge swings lately, with the Roundhill Memory ETF falling into a bear market before the stocks it tracks rebounded this week. Morgan Stanley analyst Joseph Moore says investors should look at bouts of selling as an opportunity.
"Recent concerns — second derivative deceleration, higher capex, de-speccing —were predictable a month ago," Moore wrote in a note to investors. "But this is not a normal cycle — memory is a bottleneck, increasingly THE bottleneck, to AI builds (and agentic CPU builds), which appear durable."
Moore acknowledged that the memory trade has become crowded, exacerbating the swings over the last few weeks.
But he also noted that investors may be misreading a critical detail of the broader market. The consumer electronics sector is currently facing significant pressure from rising component costs and sluggish demand forecasts.
In Moore's view, that may be making the memory market appear weaker than it actually is, since the data center buildout is the driving force behind the memory boom, not PCs and smartphones.
"AI spending growth north of 50% — perhaps well north — based on processor company commentary, matters more each year as AI is a bigger portion of the pie," he said.
The market has seen several boom-bust cycles for AI chips, but Moore maintains that this time is likely different, given how much memory demand has surged in recent months. He cited the fact that DRAM (Dynamic Random-Access Memory) is starting to limit how fast companies can expand as evidence of its strength.
In the analysts' view, there simply isn't enough DRAM to go around right now, and with data centers fueling even more demand, memory makers are well-positioned to keep growing, creating opportunities for investors willing to play the long game.
The analyst also noted that when it comes to the memory boom's timeline, his team is focused more on duration of the boom, as several years of strong earnings would be better than one year of quick, unsustainable growth.
"We think that the selloff in the stocks has created a strong entry point," he said. "We think that the best value in the market comes from the compute names, notably Nvidia and Broadcom, but memory is catching up quickly given this deceleration, and we think this should provide a good entry point for the stocks."
Morgan Stanley isn't the only Wall Street bank that says investors should stick with the AI hardware trade. Analysts from Bank of America and UBS said this week that, despite the sector's volatility, memory demand remains robust and the AI bull narratives are largely intact.
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