Memory stocks face headwinds as ‘smart money’ walks out
While Sandisk Corp, Micron Technology, Western Digital Corp and Seagate Technology Holdings remain among the top-performers in the S&P 500 Index this year, the shares are way off their highs. Now they appear to be stuck, trading around where they were in May.
“The smart money is moving on,” said Alec Young, chief investment strategist at MoneyFlows, a quant-research firm.
Momentum investors are looking elsewhere in the market for returns, he added, as evidenced by Moderna Inc.’s historic 177% rally on Wednesday and the rebound in speculative assets like Bitcoin, which is on pace for its best week since November 2024. Shares of Sandisk and Western Digital fell Friday morning, while Micron and Seagate rose slightly.
This is a substantial change, since momentum investors have been feasting on the memory and storage stocks for a while. Massive demand for AI infrastructure dramatically raised prices of memory chips and other components, creating enormous revenue growth that sent the stocks flying. Micron and Seagate more than tripled last year, while Western Digital nearly did as well. Sandisk, which began trading in February 2025, ended the year up more than 500% and then leaped another 143% in January.
BloombergMidway through 2026, every member of the group had more than tripled for the year, led by Sandisk’s 858% surge from the start of January through June 30. It was the most “over-owned” large-cap tech stock relative to its weight in the S&P 500 in the second quarter, according to Morgan Stanley.
But that’s flipped this summer, with Sandisk and Western Digital dropping more than 30% from their peaks, and Seagate and Micron down roughly 20%.
“Expectations have probably peaked, excitement has probably peaked,” Young said.
The change isn’t about fundamentals. Sandisk gave bullish long-term financial targets at last week’s investor day. New Street Research upgraded Micron to buy last week and said its growth prospects and balance sheet strength correspond to a market capitalization of between $2 trillion and $3 trillion by the end of the decade — it’s a little over $1 trillion now. And major AI spenders like Microsoft Corp., Amazon.com Inc., Alphabet Inc. and Meta Platforms Inc. remain committed to their capital expenditure plans, which are starting to pay off in better growth, a trend that could make the AI buildout more durable.
“There’s no getting around the fact that the next 12 months forward growth is really big, their margins are very good, and it seems like they’re getting better,” said Brian Mulberry, chief market strategist at Zacks Investment Management, which owns many of these stocks. The group’s fundamentals are “absolutely spectacular,” he added.
However, the overall backdrop has become more complicated. Interest rates are rising to a point where investors are worried about the fallout for tech companies, which tend to be sensitive to Treasury yields because their high market valuations are based on growth estimates going out several years. This risk is particularly acute now because AI spenders are increasingly using the credit market to raise funds, and higher rates increase their financing costs.
Combine that with the circular nature of some financing arrangements in the AI buildout, where companies are investing in their customers and vice versa, and there’s growing concern about what could happen if conditions deteriorate.
“The trade is too vulnerable to potential macro issues with rates, with the war, and with oil being elevated, which increases the odds of a rate spike,” said Young at MoneyFlows. “These macro overhangs are a problem they didn’t have before.”
One factor the group has going for it is the shares are relatively inexpensive at time when investors are looking closely at bloated valuations. Micron trades for 6.5 times earnings expected over the next 12 months, while Sandisk’s multiple is 7.3, putting both among the 10 cheapest stocks in the technology-heavy Nasdaq 100 Index. While Western Digital and Seagate have multiples in the mid-20s, they’re not far above the Nasdaq 100 at 22 despite being among the index’s top five performers this year.
That’s part of the reason why Wall Street continues to see gains ahead. Bank of America named Micron one of its “select opportunities” following the selloff in AI infrastructure shares. The stock’s recent decline is “an enhanced buying opportunity,” analyst Vivek Arya wrote in an Aug. 13 note to clients.
BloombergAnd, while there’s likely more volatility ahead, there are also signs that investors are willing to buy these dips. Shares of Sandisk, for example, rose 2% Thursday after shedding 12% in the previous two sessions, a decline that roughly mirrors the jump after the company’s investor day last week.
“The sector is still trading on positioning while fundamentals keep getting stronger underneath,” said Dave Mazza, chief executive officer of Roundhill Financial, which owns stakes in Sandisk, Western Digital, Micron and Seagate. “When momentum stalled, the selling fed on itself through profit taking, leveraged unwinds and repositioning. In my opinion, that is very different from the market marking down the fundamentals, which have only improved. And it is why we saw buyers step into the drawdown post the investor day.”
