Micron and Sandisk continue rally as demand for memory expected to persist

Shares of memory industry giants Micron and Sandisk surged on Monday, continuing an impressive upward trend. This spike follows a positive report from Melius Research, which suggested that demand for memory products could remain robust well into the next decade. The surge in demand is largely attributed to a global microchip shortage, particularly for components essential to artificial intelligence technology. High Bandwidth Memory (HBM), which is directly connected to cutting-edge graphics processing units (GPUs) from Nvidia and Advanced Micro Devices, is integral to powering virtually all significant AI data centers. Analyst Ben Reitzes from Melius Research upgraded his rating on Micron to 'buy,' projecting a potential 41% increase in share value over the next year. The stock has already risen over 550% in the past year, with a notable 5.6% gain on Monday alone. Reitzes emphasized that the market is likely to place a higher value on the unique durability of profit margins and demand driven by AI advancements. He anticipates that Nvidia will soon increase its investments in memory resources. "We are just at the beginning of this AI cycle, and the need for memory has never been greater," he stated. Micron is currently trading at an all-time high, with a market capitalization nearing $600 billion. Sandisk also saw an 8.1% increase on Monday, soaring over 3,000% in value over the past year, pushing its market cap past $157 billion. Reitzes expects Sandisk's stock to rise another 36% in the upcoming twelve months. Bernstein analyst Mark Newman corroborated this optimism, highlighting significant earnings revisions driven by soaring memory prices. The HBM technology comprises stacks of Dynamic Random Access Memory (DRAM), allowing for swift, temporary data storage that enables GPUs to perform parallel tasks efficiently. The top memory manufacturers, including Micron, Samsung, and SK Hynix, have largely redirected their DRAM supply to produce HBM, thereby creating a general shortage of DRAM and causing prices to skyrocket. Recent data from Counterpoint Research indicates that the DRAM market has experienced a remarkable 30% growth quarter-over-quarter for two consecutive periods, largely fueled by increasing memory prices. This trend has resulted in higher costs for consumers purchasing electronics, with Gartner predicting a 17% increase in PC prices this year. Solid-state drives, which rely on NAND memory, are now priced two to three times higher than they were in December, further impacting consumer electronics. As demand for NAND memory surges alongside the growing needs of AI servers, market conditions are prompting memory buyers to enter into longer contracts, often spanning three to five years. Both SK Hynix and Micron have noted that major tech firms are more willing to secure long-term supply agreements to ensure they have enough memory to stay competitive. Notably, chip design firm Broadcom has secured memory supply until 2028. Newman pointed out that memory manufacturers are also inclined to pursue longer-term contracts to establish reliable demand, especially as they consider expanding production capacity. For context, it typically takes around two and a half years to construct new manufacturing facilities before production can commence. Micron is investing $24 billion in a significant expansion of its NAND manufacturing plant in Singapore, while also developing large new chip fabs in New York and Idaho. Additionally, SK Hynix has initiated construction on its first U.S. memory packaging plant in Indiana and is ramping up production and packaging in South Korea. Sandisk is set to release its quarterly results next week, and industry observers are eager to see how these developments will unfold in the booming memory market.