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.
Image source: The Motley Fool.
Micron Technology
Micron Technology (MU +0.15%) 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.
NASDAQ: MU
Key Data Points
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.
If the market continues to push Micron's share price down over the next month and a half, this could be a great opportunity to buy the stock at a low valuation, with a big opportunity still ahead.
Sandisk
Sandisk (SNDK -0.10%) is a pure-play maker of NAND memory, and it, too, has seen its revenue and gross margin surge on the back of the current memory supercycle. The NAND market has also seen big boom-and-bust periods in the past, and the current cycle has benefited from the big three memory makers cutting NAND production last cycle and not bringing it back quickly in favor of DRAM and HBM. At the same time, AI is leading to surging NAND demand.
NASDAQ: SNDK
Key Data Points
The current market dynamics have also led Sandisk to sign multiyear deals for the first time in its existence. As a result, the company sees steadier business going forward, projecting that between fiscal 2028 and fiscal 2030, it will grow revenue in the mid- to high-teens while maintaining an adjusted gross margin near 80%. If it can accomplish that, its forward P/E, which currently sits below 6 times fiscal 2028 (ending June 2028) estimates, will look particularly cheap, especially on a further pullback in the coming months.
