AI Bubble Watch: Will Hot Memory Market Fade?
Investors concerned about the AI sector's bubble should consider the rising gold and silver markets. AI valuations are increasing, with major companies like OpenAI and Microsoft investing in AI hardware. Micron Technology's surge in memory chips has boosted demand for storage makers like Seagate and SanDisk, who may raise prices. However, risks include potential fading demand and pressure on profit margins. Despite this, stocks of MU, SNDK, STX, and WDC received analyst upgrades. Seagate and SanDisk will report results soon, providing investors time to evaluate memory suppliers.
Investors worried about the artificial intelligence sector trading in a bubble should look at the gold (GLD) and silver (SLV) markets instead. The metals sector is also undergoing a surge. Regardless, AI valuations continue to rise. OpenAI, Microsoft (MSFT), Alphabet (GOOG), and Softbank (SFTBY) continue to invest heavily in AI-related hardware.
Micron Technology (MU) represents the multi-fold percentage surge in memory chips. This led storage makers like Seagate (STX) and SanDisk (SNDK) to enjoy strong demand. They might raise prices and cut sales to the consumer markets to keep up with AI-driven demand.
Risks
The hot memory market risks fading. Storage suppliers may not meet strong demand. That would force analysts to cut their revenue forecasts. Loyal customers who secured large orders might have volume discounts. That would pressure profit margins for the memory and storage suppliers. Despite those risks, MU, SNDK, STX, and WDC stocks benefited from an analyst upgrade. Analysts at Wedbush Securities issued higher price targets for those stocks in the last week.
Add Ameriprise Financial (AMP) to the watchlist. It holds a large position in Nvidia (NVDA). Nvidia supplies GPU chips that power AI servers.
Investors have time to assess memory suppliers this week. Seagate posts results on January 27. SanDisk and WDC report results on Jan. 29.
