Source: Barron's
Author: Nate Wolff
Over the past year, the two storage chip giants $Micron Technology (MU.US)$and$SanDisk (SNDK.US)$ have seen their stock prices soar, and investors may be tempted to cash in and take profits. However, most Wall Street analysts believe that these two stocks still have room for further growth.
Independent research firm Melius Research issued a report on Monday, initiating coverage of Micron Technology and SanDisk with 'Buy' ratings, setting two-year target prices of $700 and $1,350 respectively. The firm stated that the AI boom will continue to support demand for memory chips until the end of this decade.
On Monday, Micron Technology's share price rose by 5.6%, closing at $524.56, with a cumulative increase of 558% over the past 12 months. SanDisk surged 8.1% in a single day, closing at $1,070.20, with an astonishing rise of 3,158% over the past year. SanDisk is scheduled to release its earnings report after market close on Thursday.
Melius analyst Ben Reitzes wrote, "It must be acknowledged today that memory chips have become a core component of the AI industry chain, closely tied to AI semiconductors, AI hardware, and large cloud providers."
Despite the remarkable year-to-date gains in these two stocks, investors still view memory chip-related companies as highly cyclical stocks, as they always have. Currently, Micron Technology and SanDisk have forward 12-month P/E ratios of 6.4x and 10.3x, respectively, significantly lower than the average valuation of 25x for the Philadelphia Semiconductor Index.
Melius believes that as enterprise customers increasingly sign long-term supply agreements, valuations of memory companies are expected to rise further.
The firm pointed out that memory chips have become an essential lifeline for major technology companies. Developers expanding memory configurations can optimize AI model performance, while the proliferation of AI agents has generated massive memory and storage demands across all computing power levels.
Reitzes wrote: "Memory demand will grow exponentially. To put it simply, you need more memory, and the mathematics behind memory is unforgiving — you must assume that if AI continues to advance, prices will keep rising."
This dynamic has changed how investors think. Melius noted that during the previous downturn in the memory industry a decade ago, demand plummeted and inventories soared. However, back then, memory suppliers did not have the safety net of AI cloud spending, and sales models primarily relied on spot purchases rather than long-term contracts.
Most analysts on Wall Street agree with this view. More than three-quarters of the analysts surveyed by FactSet rated SanDisk as a 'Buy,' while 92% gave Micron Technology the same rating.
Joseph Moore, an analyst at Morgan Stanley, is among the supporters. In a research note released on Monday, he raised SanDisk's target price from $690 to $1,100 and reiterated an 'Overweight' rating.
Moore stated that the upward pricing momentum for NAND flash memory, SanDisk's core business, is expected to continue in the foreseeable future as large cloud providers maintain massive procurement volumes, further tightening market supply and increasing procurement difficulties for other enterprises. Morgan Stanley expects SanDisk to report strong quarterly results and outlook on Thursday; however, given the stock’s 56% surge in April, the price may not rise immediately.
Editor/Rocky