Memory Chip Market Sees 'Bottom-Fishing Opportunity' After July Correction, Says Barron's

The memory chip market, which saw a dramatic surge over the past year, experienced a significant downturn in July. This correction has led to concerns that the rally, fueled by artificial intelligence demand and supply constraints, may have been overextended. Speculative capital has also retreated, intensifying selling pressure on memory stocks.

U.S. memory chip stocks were particularly hard-hit. SanDisk's stock plummeted 47% in July, marking its worst monthly performance since its spin-off from Western Digital. Micron Technology fell 29%, its largest monthly drop since 2015. South Korean giants SK Hynix and Samsung Electronics also saw substantial declines of 35% and 21%, respectively. The Roundhill DRAM ETF, which tracks the DRAM industry, dropped 32% to its lowest point since mid-May.

Analysts attribute this correction partly to a pullback in speculative trading in both U.S. and South Korean markets. However, the rapid price decline has also reset valuations, potentially making memory chip stocks more appealing to new investors. The past year saw memory chip stocks reach new highs, with some individual stocks increasing severalfold, driven by tight supply and booming AI demand. Micron's second-quarter earnings, for example, showed a doubling of profits from the previous quarter and an operating profit margin of 81%.

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The market sentiment recently has been a bit like cryptocurrency. High volatility attracts speculative money looking for quick gains.

Some market observers likened the recent sentiment in memory chip stocks to that of cryptocurrencies, attracting speculative funds seeking quick profits. "The market sentiment recently has been a bit like cryptocurrency," said Marta Norton, chief investment analyst at Empower Investments. "High volatility attracts speculative money looking for quick gains." The article notes that the fundamental industry outlook has not significantly weakened. SK Hynix's second-quarter earnings, while below analyst expectations, still showed a 257% year-over-year increase in operating profit. Although new capacity may compress future profit margins, memory suppliers currently maintain pricing power and continue to sign long-term supply agreements with customers.

Despite the recent volatility, there are no signs that AI demand will disappear overnight, according to Norton. Investors will be closely watching SanDisk's upcoming fourth-quarter earnings report on August 5th. Wall Street anticipates revenue and average selling prices to grow more than fourfold compared to the previous year, serving as a key indicator of memory demand strength.

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There are no signs that AI demand will disappear overnight.