Geoffrey Seiler, The Motley Fool
4 min read
September is historically the worst month for stocks, and midterm election years tend to amplify the effect, pushing down equity prices in both September and October. In fact, according to analysis by Cantor Fitzgerald, the S&P 500 has sunk by 5% or more in midterm election years during the September-October period in 15 of the past 24 midterm election cycles.
With the strong possibility of a market pullback, let’s look at two memory stocks to buy on a potential dip.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
Micron Technology
Micron Technology (NASDAQ: MU) is one of the big three memory makers, along with Korean companies Samsung and SK Hynix, getting about three-quarters of its revenue from DRAM (dynamic random access memory) and a quarter from NAND (flash). It has benefited from surging memory prices, which have lifted both its sales and gross margin to new heights.
While the stock has ridden the memory wave this year, more recently it has started to pull back from its highs on fears of an eventual AI infrastructure slowdown. The memory industry is notoriously cyclical, and as such, investors have kept the stock trading at a low valuation despite its outsize growth, with it having a forward P/E of just around 6.
However, there are reasons to believe that this time is different, as the AI infrastructure boom has added a new structural tailwind to the memory story. AI has created unprecedented demand for both high bandwidth memory (HBM, a special form of DRAM) and NAND for massive solid-state drives (SSDs) to store training data. The big three DRAM makers have largely been focused on keeping up with surging HBM demand, but supply is constrained by the availability of EUV machines, which are also used to make advanced logic chips such as graphics processing units (GPUs). In addition, HBM uses 3 times the wafer capacity of ordinary DRAM, which limits the ability to ramp up volume.
The emphasis on HBM, meanwhile, has led to a surge in DRAM prices. In fact, ordinary DRAM prices have generally moved higher than HBM due to a lack of supply coming on. This benefits Micron, which derives a smaller percentage of its revenue from HBM. This dynamic is not expected to change anytime soon, with SK Hynix predicting that 2027 will see the worst DRAM supply-demand imbalance in history, and that the market will not become balanced until 2030 at the earliest. At the same time, Micron and its rivals have begun signing long-term deals for the first time.
