Memory stocks have been the big winners in the artificial intelligence (AI) trade this year, with some memory makers up two- or threefold.
Memory plays a critical role in feeding data to the graphics processing units (GPUs) that power AI models. Naturally, as AI models become more complex and scale up, along with data centers, the demand for memory intensifies, pushing up memory prices.
Now, four top CEOs are sounding the alarm about memory, which could turn into a big win for these memory stocks.
Image source: Getty Images.
Demand for memory continues to show no signs of letting up
Part of the issue around memory demand for AI is that when it skyrockets, it affects all companies that use chips requiring memory. As AI usage has soared, the pressure on memory has driven up memory prices for everyone, including companies that make consumer electronics.
Many CEOs have talked about how this issue is affecting their businesses. Former Apple CEO Tim Cook, who recently stepped down, told The Wall Street Journal in June that he's never seen anything like the demand for memory over his long, illustrious career. "This is a hundred-year flood," he said.
As a result, Apple raised prices on some of its flagship products. Consider that Americans have been grappling with intense inflation and extreme affordability issues for years now.
Apple's not the only one dealing with the ramifications, either. Tesla CEO Elon Musk shared a similar sentiment on social media at the time, writing, "Biggest price jump in anything I've ever seen too."
The price of memory is rumored to have delayed the launch of Sony's PlayStation 6, which has no official release date as of this writing. The high prices of memory and other components seem to be making it difficult for Sony to sell its new gaming system at an economical price.
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Key Data Points
"As a principle, we do not intend to sell hardware at significant losses," Sony's President and CEO, Hideaki Nishino, said during a question-and-answer session in June. "At the same time, we are carefully monitoring the market and continuing to evaluate our approach."
Memory demand shows no signs of slowing down, according to one of the world's largest memory makers, which recently provided an update to analysts.
"In terms of 2027 and 2028 in our commentary, we are seeing stronger demand drivers than we've seen before," Micron Technology's (MU -1.02%) CFO Manish Bhatia said during the company's recent earnings call on Oct. 1. "And so as we've gone through working on our fiscal year '27 and we commented that we have more than 75% of our shipments committed for the year that shows a strengthening demand and allows us to shift our conversations on allocation with our customers out to 2028."
The stocks that will benefit
It's probably not hard to imagine that if memory prices are soaring, the memory makers will be the beneficiaries. The beneficiaries will obviously be the largest memory makers, including Samsung, SK Hynix, and Micron, among others.
Historically, memory stocks have not received high earnings multiples, primarily because they are viewed as cyclical. By the time these companies catch up with demand, the balance will likely shift toward a supply glut.
But as the CEOs mentioned above, there has never been anything like this AI supercycle, where the hyperscalers are spending hundreds of billions this year to build out data centers.
Companies like Micron are now signing long-term agreements with clients for the first time. Micron said it has 26 long-term, strategic customer agreements, covering roughly 35% of total production volume through 2030.
Just like it's hard to tell whether the AI boom will experience a dot-com bubble-like blowup, it's also hard to know whether this AI supercycle is truly different for the memory makers.
That said, the repeated alarms about memory supply shortages are great news for large memory stocks and will remain so until the landscape shifts, if and when that happens.
