As Micron's stock rebounds, Morgan Stanley says investors shouldn't get spooked by the past

By Britney Nguyen

Memory chips remain a bottleneck to AI development and demand looks durable, Morgan Stanley analyst says

Memory-chip stocks were on the rebound Monday.

Memory and chip stocks were bouncing Monday, with a Morgan Stanley analyst noting that the current cycle leaves room for "false flag" signals that may spook investors.

Monday's rallies come after the PHLX Semiconductor index SOX officially fell into bear-market territory on Friday.

"In a cycle entirely driven by data centers, there are going to be mixed signals in consumer, PC [and] smartphone markets, which impact spot-market and inventory levels at various points," Morgan Stanley's Joseph Moore wrote in a note to clients. "We believe that some of the anecdotes dragging the stocks down in recent days have been about those parts of the market."

The intense shortages caused by data-center demand that have allowed memory-chip makers to raise prices "show no signs of abating," Moore added. He sees memory prices jumping at least 25% from the second quarter to the third quarter of this year.

Moore said he thinks it "misses the point" to look for "sell signals" based on trends from past memory cycles.

"AI is consuming so much DRAM that there isn't enough left over for other sectors, and everywhere we look we see indications that it is a true bottleneck," he wrote, referring to dynamic random-access memory. "It's holding back PC builds and smartphone builds. Cloud customers are paying premiums," and presumably not to stash memory components in warehouses, he noted.

The memory shortage is expected to worsen through 2028, according to Moore. "There isn't enough memory versus AI requirements, and we just don't see that changing," he said.

Although long-term agreements from memory companies and a redesign of AI chips to address memory constraints "could flatten the amplitude of the cycle," Moore said those factors should increase the duration of the memory boom. That's "likely better for stocks in the long run," he added.

Shares of Micron Technology (MU) and Sandisk (SNDK) were up each up more than 5% in Monday afternoon trading. SK Hynix's American depositary receipts (SKHY) were up more than 2%.

While Moore views compute stocks such as Nvidia (NVDA) and Broadcom (AVGO) as "the best value in the market," memory makers are "catching up" and there's "a good entry point" for those stocks, he said.

-Britney Nguyen

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07-20-26 1314ET