What History Reveals About the Road Ahead for Memory Sector Giants
The AI memory boom may last longer than past cycles, but history warns investors not to mistake it for a permanent supercycle.
Overview
Here's a paradox worth sitting with: The memory chip business is enjoying arguably the strongest fundamentals in its history, with demand for artificial intelligence (AI) memory outstripping supply, yet memory stocks recently tumbled into a bear market. That makes sense only once you understand the sector's past, because in memory, history doesn't just inform the future. It practically writes it.
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For three decades, the memory industry has run the same script over and over: prices boom, manufacturers over-invest, supply floods in, prices crash, everyone bleeds red ink, and then it all starts again. The last cycle was a textbook example. A cloud-driven boom in 2017 and 2018 pushed margins to levels once thought impossible for a commodity business. Then supply caught up, prices collapsed, and the downturn that followed was savage. By 2023, Micron Technology (NASDAQ: MU) had seen its stock cut roughly in half from its 2022 high, and SK Hynix (NASDAQ: SKHY) posted a full-year net margin of around negative-28%. Read that again: One of the best memory makers on earth lost money on nearly every dollar of sales for an entire year.
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Originally published at www.fool.com.