Micron and SanDisk Stocks Rebound as Investors Bet on AI Boom, Cheap Valuations

Top memory stocks have bounced back over the past five weeks as investors bought the dip, betting the artificial intelligence boom will continue. Micron (NASDAQ:MU) has jumped to $1,016, up 40% from its July low, and SanDisk (NASDAQ:SNDK) has climbed to $1,740, up 73% from its own July low. The Roundhill Memory ETF (CBOE: DRAM) has gained 35% over the same period.

Micron and SanDisk Stocks are in a Recovery Mode

Memory stocks are rising as investors predict that the AI boom and the memory shortage will continue in the coming years. 

Recent earnings reports have provided more color on this, with most companies releasing strong results. Last week, Dell Technologies (NYSE:DELL) reported strong numbers, with its revenue soaring by over 50%. 

Most importantly, the biggest buyers of memory products have hinted that they will continue spending. This includes hyperscalers like Microsoft, Alphabet, Amazon, and Meta Platforms, and neocloud companies like Nebius and CoreWeave.

The most recent earnings shows that memory companies are doing well. Micron’s revenue jumped to $41 billion in the third quarter, with its fourth quarter figure expected to hit $50 billion. SanDisk, on the other hand, made $9 billion, up by 372% YoY, with its adjusted free cash flow hit $5 billion.

Memory companies have also created strategies to reduce the cyclical risk that has affected the industry in the past few years. One of the most important one is that they have entered long-term agreements with clients. In its earnings, SanDisk said that it had signed contracts with 8 data center customers, with the minimum contracted revenue at floor price being $94 billion.

Analysts expect that the revenue growth will continue. Micron’s annual revenue in the next financial year is expected to be $241 billion, up sharply from the $129 billion it is expected to make this year. Similarly, SanDisk’s revenue is expected to move to $48 billion this fiscal year, a 141% increase from last year, followed by $57 billion next year. 

Memory Companies are Trading at Bargain Prices

Micron and SanDisk have also done well because of their valuations, which are lower than that of the S&P 500 Index. SanDisk, despite its strong revenue and profitability growth, has a forward price-to-earnings ratio of 8.13, much lower than the sector median of 23. 

Micron, on the other hand, has a forward P/E ratio of 13.85, much lower than the sector median of 22. The same is true with other companies in the memory space, including Western Digital, Seagate Technologies, Samsung Electronics, and SK Hynix.

Most notably, their rebound may continue now that sector deleveraging is complete. The most notable one was the Situational Awareness, which collapsed in July. The same deleveraging has happened in South Korea.

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