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Memory stocks gained in premarket trading Thursday as investors continued to favor companies expected to benefit from strong artificial intelligence infrastructure spending and tight memory supply.
Micron Technology Inc. MU, Sandisk Corp. SNDK, SK hynix Inc. SKHY and Western Digital Corp. WDC moved higher as demand for AI memory and storage remained strong.
AI Spending Keeps Memory Demand High
AI servers require large amounts of high-bandwidth memory (HBM), DRAM, NAND flash and storage. As hyperscalers expand data-center capacity, investors expect memory makers to benefit from firmer pricing and sustained demand.
Morgan Stanley’s Andrew Slimmon said memory chips and compute power are likely to remain in short supply for the foreseeable future, reinforcing his positive view on artificial intelligence-related investments despite concerns about heavy data center spending.
Speaking on CNBC on Wednesday, Slimmon said Wall Street remains focused on the near-term cost of AI infrastructure, while technology companies are investing aggressively to capture long-term demand.
“There’s a scarcity of memory chips. There is a scarcity of compute power,” Slimmon said. “I don’t think that will be resolved in the near future.”
Slimmon said investors should focus on areas of scarcity, arguing that supply has yet to catch up with growing demand for AI infrastructure. While he acknowledged that some memory stocks became overhyped earlier this year, he said recent pullbacks have made valuations more attractive.
He also dismissed comparisons between the current AI spending cycle and past boom-and-bust periods such as the dot-com era or commodity cycles.
Slimmon said the dot-com bubble ended only after supply caught up with demand, noting that current industry conditions suggest the AI infrastructure buildout remains in its early stages.
Morgan Stanley Sees Multi-Year Tailwind
Morgan Stanley analyst Joseph Moore echoed that view, saying the recent pullback in memory stocks has created an attractive buying opportunity as AI spending continues to tighten industry supply.
Speaking on CNBC on Wednesday, Moore said memory remains “at the center of every methodology for AI training and inference” and argued that recent weakness reflects short-term concerns rather than a deterioration in long-term demand.
Moore said data center customers continue to view memory as a key constraint on expanding AI infrastructure. He expects that dynamic to support the sector for several years.
“We’re seeing these second-derivative sell-offs,” Moore said. “But the true north here is the strength of the data center and the belief from data center customers that memory’s going to be a binding constraint on the ability to ramp AI for really multiple years.”
Moore also said the industry is experiencing an unusual period of pricing power. He estimated memory inflation could total about $80 billion this year as demand for high-bandwidth memory, DRAM and NAND outpaces supply.
While higher prices are raising costs for electronics makers and cloud providers, Moore said there is no practical substitute for the memory required to train and run AI models.
He added that NVIDIA Corporation NVDA CEO Jensen Huang recently told investors memory shortages are likely to persist for years, forcing the industry to improve efficiency rather than rely on additional supply.
Moore said he expects the shortage to ease only if AI spending slows materially, a scenario Morgan Stanley does not currently anticipate. He said the current supply-demand imbalance could last three to four years if AI investment remains strong.
Price Action: Sandisk shares were up 1.62% at $1625.11, Micron Technology shares were up 2.98% at $988.05 and SK hynix shares were up 6.55% at $176.10 during premarket trading on Thursday, according to Benzinga Pro data.
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This article Why Micron, Sandisk, and SK Hynix Are Surging—And How to Play It originally appeared on Benzinga.com.
