Shares of Micron Technology are climb on Monday morning as investors warm back up to the memory trade following a sharp chip-sector selloff on Friday.
"The memory trade is alive and well," according to Cantor Fitzgerald analyst C.J. Muse, and investors are at an inflection point where they need to decide if dynamics within the cyclical industry have changed for good, he said.
Micron's stock $(MU)$ is up nearly 10% early in Monday's session after dropping 13% in Friday trading.
Shares of Sandisk $(SNDK)$ are up more than 4% in morning trading Monday, while shares of storage makers Western Digital $(WDC)$ and Seagate Technology $(STX)$ are up more than 3% each.
Muse said he expects both dynamic random-access memory and NAND memory to remain undersupplied from this year through the end of 2028. He pointed to "an increasingly robust demand backdrop" that is now also being driven by growing demand for central processing units, coinciding with memory makers being unable to add capacity fast enough. Demand has surged for CPUs to run agentic artificial-intelligence applications.
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"This dynamic supports stronger-for-longer earnings, suggesting still meaningful upside to consensus margins/estimates for the forseeable future," Muse said in a Monday note.
Until the last few months, memory chip makers had been reluctant to add manufacturing capacity out of fear that demand would eventually slow down. There's still a severe shortage that has allowed them to raise prices, boosting earnings.
Now, downstream customers are realizing "today's pricing is here to stay," Muse said, and that's altering the markets for both DRAM and NAND as companies look to secure supply.
Muse said about 50% of bits across both markets will go toward long-term agreements by the end of the year. These involve "upfront cash payments and guaranteed pricing corridors." Memory production is measured by bits, which are the smallest units of data.
That memory suppliers will start each quarter with half of their bits accounted for by these agreements "dramatically changes price discovery and price negotiations going forward," he said.
Therefore, Muse sees "a permanent change" for the memory industry's long-term earnings power, and more upside ahead for Micron and Sandisk shares. The Cantor team sees total revenue for memory makers reaching $1.21 trillion in 2027, with $850 billion from DRAM and $360 billion from NAND. For 2028, Muse said revenue could approach $1.4 trillion.
Muse raised his price target on Micron's stock to $1,500 and his target on Sandisk's stock to $2,900, representing upside of 74% and 86%, respectively, from their Friday closing prices.
"We are in a new AI-driven memory paradigm where we see sustainability of favorable dynamics suggesting the memory trade may only be in the mid-innings today," Muse said.
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Meanwhile, Nvidia (NVDA) CEO Jensen Huang announced a new partnership with South Korean memory chip giant SK Hynix (KR:000660) on Sunday to codevelop memory products for AI factories - or large-scale AI data centers. However, shares of SK Hynix and fellow memory chip maker Samsung Electronics (KR:005930) finished lower in Korean trading on Monday.