Bulls vs Bears on Memory Stocks: Is This Cycle Really Different?

On Friday, Sandisk (SNDK) plunged 13.5% a day after it beat estimates, and Bank of America cut its price target on the stock, citing concerns about late-cycle valuations, according to Stocktwits (via Yahoo Finance) and Invezz. Micron (MU) slid 5.3%. The question behind the selling is the oldest one in memory chips: is this boom one more cycle that will end like the others, or have AI and long contracts changed the business?

The argument comes down to timing: when new supply catches up with demand. Nvidia’s chief executive says not until after 2029. Counterpoint Research expects prices for DRAM, the working memory in computers and servers, to fall about 23% in 2028, CNBC reported.

The bull case

Jensen Huang, chief executive, Nvidia

AI will keep memory scarce for years. Huang argues that demand for memory in AI data centers will keep rising, and that Nvidia will keep finding new ways to use it. He said he doesn’t expect an oversupply until sometime after 2029 in an interview at Nvidia’s GTC event in Berlin that CNBC reported on 22 October, according to The Motley Fool and DigitalToday. “One of the things that’s really great about memory is that you can always use more of it,” he said.

Kwak Noh-jung, chief executive, SK hynix

Long contracts already lock in more than half of the next two years. SK hynix said on 28 October that demand will exceed supply through 2030, because the newest chips are hard to make and new factories take years to build. Its contracts with 14 major customers cover more than half of its planned capacity for 2027 and 2028, with prices set inside a range agreed with customers, according to the results release and TrendForce. “The customer trust built through our technological competitiveness is leading to long-term contracts,” Kwak said in the release.

Jeongku Choi, senior research analyst, Counterpoint Research

Contracts make this a “New Normal,” so the next downturn will be milder. Choi told CNBC on 15 October that buyers now sign multi-year contracts with substantial upfront payments and price limits, so a downturn shouldn’t be as sharp as past ones. Counterpoint still expects DRAM prices to fall about 23% in 2028, but that would leave them about 230% above 2025 levels, CNBC reported. “The current memory market is considered to be in a ’New Normal’ era,” he said.

The bear case

The bears lean on history: fat margins pay for new factories, and new factories end booms. Pzena Investment Management, a value-fund manager that still owns Samsung but has trimmed it, wrote in May that today’s margins are “likely to mark the peak of the current cycle,” adding that memory for AI servers makes up only about 12% of DRAM demand, measured in bits, this year.

Lip-Bu Tan, chief executive, Intel

High memory prices are already cutting PC demand. After Intel reported on Thursday, Tan said customers “began signaling a PC slowdown based on the memory prices and availability,” Yahoo Finance reported, and Intel’s finance chief said in the results release that he expects the slowdown to last at least through the first half of 2027. That’s the mechanism bears expect to end the boom: buyers of PCs and phones buy less when memory gets too expensive. Intel (INTC) plunged 28.6% on Friday, its worst day since 1974.

Kye-hyun Kyung, senior adviser and former head of the chip division, Samsung Electronics

China’s new factories could end the shortage by late next year. Speaking at a National Academy of Engineering of Korea forum in May, Kyung said Chinese memory capacity could reach about 6 million wafers a month in the second half of 2027, enough to start pushing prices down then or in early 2028, Notebookcheck and PC Gamer reported. In October, CNBC and Invezz reported fresh worries about CXMT, China’s leading memory maker, as it laid out plans for new server memory and HBM, the stacked memory used in AI chips.

James Mackintosh, Streetwise columnist, The Wall Street Journal

A low price-to-earnings ratio is no comfort at the top of a memory cycle. In a May column, Mackintosh argued that “high profits encourage CEOs to expand supply,” and that the cycle turns when the extra supply pushes prices down. His warning sign is the valuation: Micron’s forward price-to-earnings ratio was under 10 at the time, close to the nine it traded at when the stock peaked in early 2022.

Where they agree

Nobody disputes that prices are still rising, or that they’re rising more slowly. TrendForce forecast on 30 September that contract prices for conventional DRAM would rise 10% to 15% this quarter, with enterprise SSDs the only category where increases would speed up.

The number that decides it

Watch Micron’s gross margin, the share of sales left after production costs. On a GAAP basis it has risen for six straight quarters, to 86.8% in the quarter to 3 September.

Micron’s guidance for this quarter, about 85.95%, would end that run. It reports again in December (it reported the same quarter on 17 December last year), and a second lower guide would be the bears’ first hard proof; a margin that holds would be the bulls’.

Our read

Today the evidence favors the bulls on timing: contracts cover more than half of SK hynix’s output for 2027 and 2028, and prices are still rising, so we think a sudden price collapse in 2027 is unlikely.

The bears have the direction right, though. Price increases are shrinking, Micron’s margin guide has turned down, and the contracts cut both ways: TrendForce says pricing formulas in long-term deals are set to make some suppliers’ server-memory price increases lag the market this quarter. It’s too early to call the turn, and Micron’s December guide will tell us whether it has started.