The stock market's biggest winners this year are also its biggest bargains. Memory chipmakers have skyrocketed while trading at valuations that suggest investors expect them to crash any day now.
SK Hynix, the South Korean memory giant, soared more than 500% over the past year. Just last week it raised $26.5 billion in a U.S. share offering that had investors scrambling for access. Yet the stock trades at just seven times earnings. In the U.S. market, the two biggest first-half gainers, Sandisk and Micron Technology, sit in the lowest 20% of S&P 500 stocks by valuation.
The paradox reveals a deep skepticism. Wall Street sees memory chips as a classic boom-and-bust business. History backs that view. Memory is highly cyclical, prone to devastating downturns that have destroyed investors. Good times never last, the thinking goes.
Mark Newman at Bernstein Research frames it bluntly. "Multiples are low because of the perceived un-sustainability of earnings," he says. The market is essentially pricing in an imminent collapse in profits.
But a growing camp of analysts believes this cycle is genuinely different. The catalyst is artificial intelligence. AI data centers are gobbling up memory chips at a pace and price point unlike anything seen before. This is not the smartphone market, where consumers balked at higher device costs and limited how much chipmakers could charge. Data centers have no such constraint.
"We've never seen this magnitude of price hikes," Newman notes, comparing current conditions to past booms that eventually fizzled. The scale of current demand suggests something fundamental has shifted.
Gil Luria, an analyst at D.A. Davidson, goes further. Memory is the essential ingredient for AI to function. "The GPU can't do an AI transaction without memory," he says. "We can't possibly have enough of it." That would imply valuations should reflect the demand of a tech mainstay, not a cyclical commodity.
The stakes are high. If the bulls are right, memory stocks could climb even higher. If the skeptics are right, current enthusiasm will prove another false dawn and valuations will look justified in hindsight.
Author James Rodriguez: "The market's refusal to price in AI's structural demand for memory looks like either the next big opportunity or the next obvious trap."
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