Micron, SanDisk, and Western Digital Remain in Bear Territory, But Key Catalysts Remain Intact

Top memory stocks like Micron (NASDAQ:MU), SanDisk (NASDAQ:SNDK), and Western Digital (NASDAQ:WDC) extended their decline as investors exited artificial intelligence positions.

Micron, the third-largest player in the high-bandwidth memory market, fell for a fifth consecutive week, ending at $884, 30% below its year-to-date high. SanDisk and Western Digital have dropped 51% and 54%, respectively. The Roundhill Memory ETF (CBOE: DRAM) fell to $48, 41% below its year-to-date high.

Memory Stocks Have Slumped as AI Slowdown Remains

Memory companies like Micron, SanDisk, and Western Digital have fallen in the past few months as investors remain concerned about the AI sector. 

Investors are concerned that the AI sector is starting to slow down, which will impact demand for memory products. One reason for this is the elevated interest rates and bond yields. In a statement this week, Elon Musk warned that over 200 neocloud companies will collapse as funding dries. 

There are signs that the funding issues are affecting the biggest companies. OpenAI, the AI pioneer, is concluding its fundraising, taking in $11 billion, well below its target of $30 billion. It has also lowered its target valuation from $1.4 trillion to $1.25 trillion.

Top spenders in the AI space, including hyperscalers like Microsoft (NASDAQ:MSFT), Meta Platforms (NASDAQ:META), and Alphabet (NASDAQ:GOOG), have come under pressure as investors question their massive capital expenditures. Most of these companies are now reporting negative free cash flow. 

As such, there is fear that a slowdown in AI spending by hyperscalers and other companies in the industry will lead to weak demand for memory products. At the same time, there are concerns that competition from Chinese companies like CXMT will put pressure on memory prices. 

Micron, SanDisk, Western Digital, and other Memory Companies Have Catalysts

On the positive side, there are several potential catalysts that may drive memory companies higher. One of them is that their revenue growth and profits are accelerating. SanDisk said that its revenue rose by 378% YoY in the September quarter to $11 billion, with its net income rising to $8 billion. 

Similarly, Western Digital said that its revenue jumped by 55% to $4.38 billion. In South Korea, Samsung Electronics and SK Hynix also published strong numbers. All these companies said that demand was still strong and that they were sold out for the coming year. 

Further, these companies are returning cash to their investors. SanDisk returned $5 billion to shareholders in the quarter. It has repurchased 4% of its outstanding shares in the last two quarters. Western Digital continued its buyback and hiked its dividends by 17%.

Micron has said that it will repurchase shares worth $35 billion starting in December when the CHIPS Act restrictions end. Other companies like Samsung and SK Hynix are returning billions of dollars to their shareholders.

All of this is happening as they have become some of the cheapest companies on Wall Street. SanDisk has a forward price-to-earnings (P/E) ratio of 5, while Micron and Western Digital trade at multiples of 5.02 and 14.8, respectively. By contrast, the S&P 500 Index trades at a forward multiple of 18.6. As such, bargain hunters could start buying the dip.

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