Memory stocks have had one of the all-time great runs. Why this could be the end
There are two categories of stocks in the AI boom:
1) The innovators
2) The incidentals
The innovators are the companies that created artificial intelligence. Those are companies like OpenAI, Anthropic, Alphabet and cutting edge computer chip companies like Nvidia.
The incidentals are the companies that happened to be in the right place at the right time. They have impressive products but they were built for the pre-AI world and happened to have AI applications. These are things like server racks and -- most notably -- memory stocks.
SanDisk is the poster boy for the incidentals. It's a company that's making the same NAND flash memory and solid state drives. Again, these are impressive products but it was a stable market that traded almost like a commodity. With the AI race though, the flip switched and extreme demand hit tight supply.
AI I data centers need huge amounts of fast storage for training data, inference pipelines, checkpoints, vector databases, logs, and model-serving infrastructure. It's a pick-and-shovel factory that happened to be built alongside the world's greatest gold discovery.
The earnings are truly remarkable but it's entirely been due to extreme price gouging. That's fine, it's capitalism but the flip side of capitalism is that it allocates capital and it's very quickly headed to building more capacity.
For SanDisk, consensus earnings are $65 per share this year and $184 in 2027. That's astonishing given that shares were at $40 in August. It closed yesterday at a modest 12x 2027 earnings.
The question that's going to haunt investors is this: How sustainable are those earnings? No new supply is coming on at all this year but it starts to arrive in 2027 in small doses and a Singapore NAND fan is scheduled to come online in 2028 with a Micron New York megafab coming in 2030.
There's also the elephant in the room -- or the dragon as it were -- as the manufacturing champion of the world sets its sights on memory. Chinese chipmaker YMTC was revealed last month to be planning new factories in addition to one that will be completed this year. The company had 11.8% of global market share last year (about the same as SanDisk) and will double capacity, though it's not clear how quickly.
So today's high prices are cyclical and reflect shortages.
Today the market is having doubts with SNDK shares down 9.7% to $2059 in the pre-market. If we close there it will trace out a classic shooting star on the chart and could be the end of one of the all-time great squeezes.
The other one to watch is Micron, which reports earnings on Wednesday and is also down 9.2% after an epic run to a record high of $1211 yesterday. The numbers will surely be impressive but even the smallest sign that earnings are anywhere near a peak could set off a deep decline.
This article was written by Adam Button at investinglive.com.提供 MainLink：Investinglive RSS Breaking News Feed
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