Is the AI-Memory Boom over?

In this week’s Global Macro analysis, we examine eight of the biggest AI memory stocks as weakening price momentum contrasts with record-breaking earnings. Is this simply a healthy correction, an opportunity to buy the dip, or the beginning of a broader rotation out of one of the market’s hottest sectors?

A pin lies in wait for every bubble. And when the two eventually meet, a new wave of investors learns some very old lessons: First, many in Wall Street (a community in which quality control is not prized) will sell investors anything they will buy. Second, speculation is most dangerous when it looks easiest. – Warren Buffett

What is the ‘easiest’ speculation these days? No doubt it is found in the AI-Memory sector. Many securities surged 5-10x in a year.

But the ground beneath the boom appears to be shifting. Very often, speculative capital overstays its welcome in these popular securities. Before they know it, these positions sink into red by 20-30%.

I think this is already happening. Many AI-Memory stocks have dropped sharply in recent days, despite a wave of good earnings reports.

For example, Micro Technology (MU) reported a staggering $28 billion of net earnings on June 24. This is a 15x increase year-on-year. But after a one-day pop, prices have not really progressed much.

Today (7/7), Samsung Electronics (KS:5930) reported one of the largest quarterly profits ever – US$58.4 billion – yet its share price slumped almost 7%! Think about this, the firm just doubled its sales YoY whilst its profit rose 1,800%. But investors move to dump the stock.

This tells us one thing: Most of these monster earnings are already priced in. In other words, investors have long anticipated the sector’s steep earnings trends. So when the actual results emerged, traders bolted to the exit door.

“Buy the rumours, sell the fact” – is a very old market adage, an adage that remains true to this day. When price movements fail to synchronise with these excellent fundamental results, it is often time to reassess.

And this is what I going to do this week. The sector is very important and worth keeping an eye on. What happens there will not stay there due to the size and scale of the sector.

Recent Price Action

Below I take a good technical look of some of these AI-Memory stocks. Price action matters a lot since they collectively anticipate news and profits.

Micron Technology (MU) – down a fifth from its historic peak near $1,200. Prices even dipped below the psychological $1,000 level this week, suggesting strong selling momentum. Coupled with the “temporary boost” from MU’s latest blockbuster earnings, I suspect the near-term risk here is a fall into the next band at $800-900.

Sandisk (SNDK) – peaked out at $2,300 last month. As prices lost the $2,000 level, the next downside support is near $1,500. Bulls, however, may contend that its recent fall is just a ‘reversion to mean’. The long-term bull thesis here remains intact. True, the pattern of higher lows is still unbroken. But a -25% correction from $2.300 is a nasty warning that should raise the possibility of a deeper fall, especially the stock plunged by 15% in a day on new real news.

Western Digital (WDC) – also slumped by 25% from its near-term peak. This returns the stock to its trend. A break below $500 will suggest a toppy formation and potential break of the steep uptrend.

Samsung Electronics (005930:KS) – the $1 trillion company has not really progressed in over six weeks. This loss of upward momentum is creating a near-term, top-heavy pattern, with important support noted at W280,000. A break of this floor may lead to a cover of that ‘gap’ at W230,000.

SK Hynix (000660:KS) – encountered stiff selling pressure at W3,000,000 before correcting by almost 30% in the last ten sessions. Even with this steep retracement, its long-term uptrend remains intact, as evidenced by the pattern of rising lows. But this is a volatile stock and intraday swings are large. I would not rule out a deeper test of the lateral support at W2,000,000.

Koixia Holdings (285A:JP) – a Japanese spinoff from Toshiba that listed in late 2024. The under-the-radar memory stock gained more than 50x in a little more than 18 months. This is an amazing performance – on par with the greatest DotCom or AI bull runs. But after such a rally, prices have corrected sharply, down by 35% in just 10 sessions. A break below Y70,000 may confirm a medium-term top.

STMicroelectronics (STM) – even European tech stocks are surging. STM, a French-listed semiconductor firm, tripled in just three months. This is no doubt a fantastic performance and backed partly by its earnings trend. But historically the firm is a ‘late comer’ to the tech rally. For example, STM only surged in 1999 when the DotCom bubble was in the latter stages. Therefore, I provincially take STM’s rally as a warning sign that the tech boom is drawing to a close.

Summary

When a sector leader posts one of the largest-ever quarterly profits and its stock slumps, it is a warning sign to the rest of the industry. Momentum is shifting; expectations are harder to meet. Rallies will probably be fleeting and investors will be tempted to ‘sell the rally’.

Adding to the thesis that the AI-Memory boom is fading, I noted the quiet rotation into older ‘Mag 7’ stocks.

Apple (AAPL), for example, is returning to its all-time highs after a four-day rally (see below) while Google (GOOG) and Microsoft (MSFT) have also rebounded sharply. The contrast with those falling memory stocks is stark. Perhaps investors are expecting the memory shortage to subside. Hence, the rotation from those stocks back into the blue-chip tech stocks.

This subtle shift in investor interest beneath the steady indices should warrant some attention. No boom lasts forever, and the recent volatility in memory stocks is potentially masking a cyclical trend change.

But this is not to say the sector will go down in a straight line. When these stocks’ decline becomes oversold, prices will rebound. Trading these stocks should entail tight stops as not to get caught on a steep (adverse) move.