SanDisk Soars 411% This Year Yet Wall Street Forecasts 9x PE. Why Are Memory Stocks Getting Cheaper as They Rise? When Will the Memory Cycle Peak?

Analysts generally believe that although tight supply has pushed memory stock prices to record highs, there is still room for further upside.

Kim Forrest, Chief Investment Officer at Bokeh Capital Partners, stated that all HBM (High Bandwidth Memory) can command exorbitant prices due to supply and demand dynamics, and current pricing is not considered high because the product is being bought up and is already sold out. People believe that if prices remain high, there may still be further upside.

Rob Thummel, Senior Portfolio Manager at Tortoise Capital, noted that demand for storage and memory will continue to grow unless there is a significant change in capital expenditure from hyperscale cloud providers. "So far, all we have seen is an increase in capex." Thummel currently manages the Tortoise AI Infrastructure ETF, which holds shares of SanDisk and Micron and has risen 70% year-to-date, performing in line with the Philadelphia Semiconductor Index.

More optimistic investors believe that future demand for memory will surge further because we are still in the early stages of a massive AI infrastructure build-out cycle. Market demand for storage is expected to remain elevated for several years.

Jay Hatfield, CEO of Infrastructure Capital Management, stated that this is a full-blown boom and exiting now would be a mistake. He believes that the valuations of memory stocks support their rally, noting, "This is exactly the condition we require for participating in this type of momentum trade."

Meanwhile, some analysts have cautioned against the low valuations of such stocks, noting that a low valuation is not an entirely bullish signal, particularly given the inherent cyclicality of the memory sector. Analysis indicates that at the industry's peak, memory stocks often trade at single-digit valuations. When demand is robust, prices climb and supply expands; however, once orders decelerate, excess supply weighs on prices and earnings, causing P/E ratios to expand. The P/E ratio is typically at its lowest point between these two phases.

Randy Hare, Director of Equity Strategy at Huntington National Bank, noted that memory stocks should not be valued in the same manner as companies with consistent earnings growth; the ideal time to buy is when valuations are elevated and earnings are depressed, as this permits a bet on the next earnings growth cycle.

While Hare remains optimistic about the storage sector's upside potential, he no longer recommends chasing the rally at current price levels, as volatility is expected to intensify.

Despite the prevailing market view that this memory cycle is different from previous ones, Jed Ellerbroek, portfolio manager at Argent Capital Management, believes that shortages will ultimately lead to a supply glut. He contends that while it may take several years for supply to catch up with demand under current conditions, an oversupply is inevitable.

This content was translated using AI and reviewed for clarity. It is for informational purposes only.