Further gains for the shares of Micron and Co.? – Analyst sees DRAM cycle peak still far away

Further gains for the shares of Micron and Co.? – Analyst sees DRAM cycle peak still far away

The recent correction in memory chip stocks has unsettled many investors. However, analysts see this as no indication of an end to the boom.

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Memory chip stocks such as Micron, Samsung Electronics and SK hynix corrected significantly at the beginning of June. For Morgan Stanley analyst Shawn Kim, however, this development is not a warning signal, but rather a necessary breather within a market cycle that continues to be strong. Accordingly, a correction after the strong price increases of the past few months is inevitable and ultimately healthy if the bullish trend in memory chips is to continue until the end of the year.

DRAM remains a bottleneck in AI infrastructure

The focus of the positive assessments continues to be the market for DRAM memory. As MarketWatch reports, Morgan Stanley continues to see DRAM as one of the key bottlenecks in the global expansion of AI infrastructure. The three leading manufacturers Micron, Samsung and SK hynix are therefore in a favorable position to benefit from ongoing demand.

According to the news site, analyst Shawn Kim emphasizes: “The cycle continues to accelerate, earnings estimates continue to be revised significantly upwards and are more sustainable than most market participants believe.” The stock market expert sees this as an important confirmation of the industry’s price development to date. Rising earnings expectations would justify the rally over a longer period of time.

Cycle high may still be several quarters away

The assessment of the future development of the DRAM market is particularly noteworthy. If it follows previous patterns, Kim believes the current DRAM cycle should approach its peak by the end of the year.

However, he believes another scenario is more likely. The demand for so-called agentic AI applications could mean that the actual cycle high is not reached until several quarters later. The analyst therefore believes that the current upswing could last longer than previous cycles.

Long-term contracts change the market structure

A key difference from previous storage cycles, according to MarketWatch, is the increasing long-term supply agreements between storage manufacturers and their customers. These could stabilize earnings development and justify higher valuations. Kim points out that previous storage cycles have been driven more by supply than demand. The result was often overcapacity and a subsequent drop in prices.

According to MarketWatch, Wolfe Research analyst Chris Caso also sees potential for higher valuations. The long-term agreements would align capacity expansions more closely with real demand forecasts. Since such contract structures are still relatively new in the storage industry, they may not yet have been fully taken into account in the expectations of many investors.

DRAM prices continue to rise

The industry is receiving additional tailwind from price developments. Given supply bottlenecks, Wolfe Research expects DRAM prices to rise by 200 percent this year. The analysis house predicts a further increase of 17.5 percent for the coming year.

Morgan Stanley also points to the tense market situation. Accordingly, storage prices have almost doubled since February, while delivery times have lengthened. In addition, significant parts of the available supply are already tied up in long-term contracts.

However, Kim expects memory prices to eventually fall. However, that is not necessarily a bad thing for storage companies. Lower DRAM prices could make AI models cheaper to operate, making them more cost-effective to implement, potentially driving demand for AI even further, Kim said.

What this means for investors

It is an overall positive picture for memory chip manufacturers like Micron: Analysts at Morgan Stanley and Wolfe Research do not see the latest correction as the end of the memory cycle, but rather as a necessary adjustment within a still strong market environment. According to the analysts, the AI-driven demand for DRAM memories and the increasing importance of long-term supply contracts remain crucial for further development.

Investors who are already invested should therefore pay particular attention to the development of DRAM prices, demand from the AI ​​sector and analysts’ earnings revisions. According to the analysts mentioned, anyone considering entry will still find themselves in an environment in which the peak of the current storage cycle may not yet have been reached.

Thomas Zoller, editorial team at finanzen.net