Micron and Sandisk Are Surging: Can the Rally Last Through 2027?

The hottest artificial intelligence (AI) stocks this year are not names like Nvidia and Palantir Technologies, which have put on a clinic in recent years and generated phenomenal returns for shareholders. This year, parts of the AI supply chain have come into focus, propping up lesser-known companies and even some legacy tech names that had been overlooked until recently.

Two of those companies are Micron Technology (NASDAQ: MU) and Sandisk (NASDAQ: SNDK), which are up 240% and 570%, respectively, this year (as of July 22). Can the rally last through 2027?

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Why Micron and Sandisk are booming

Micron and Sandisk both make different types of memory, which feed the graphics processing units (GPUs) data that makes AI reasoning possible.

Sandisk is focused on NAND flash memory, which is essentially longer-term, cheaper storage that maintains data even when an operating system's power is turned off. In AI, NAND is used to store massive data sets and AI models that can be quickly transferred to GPUs when they begin a task.

Micron makes NAND flash memory, too, but it also makes dynamic random-access memory (DRAM). This type of memory is more expensive and loses data when the operating system's power turns off. But it is also the key to making AI possible. DRAM delivers data to GPUs incredibly quickly, enabling AI models to process, respond, and provide solutions in real time.

Companies like Micron have been able to stack DRAM die vertically to create high-bandwidth memory (HBM), which makes AI workloads even faster by providing greater bandwidth.

Naturally, as GPU clusters and data centers have scaled, demand for NAND, DRAM, and HBM has surged, driving higher prices and, in turn, higher revenue and earnings for companies like Micron and Sandisk.

Can the rally last into 2027?

The interesting thing about memory stocks is that they have historically been quite cyclical.

That's because there is typically a timing imbalance between supply and demand. What often happens is that by the time memory companies catch up to demand, demand has fallen, and they overshoot, leading to a supply glut.

But the AI supercycle is unlike anything investors have ever seen, and most analysts expect it to be a while before supply catches up with demand.

On the company's most recent earnings call, Micron CEO Sanjay Mehrotra said he expects high demand to continue past 2027, due to AI demand and "structural supply constraints."

Furthermore, Micron announced 16 strategic customer agreements (SCAs), many of which are long-term, running from this year through 2030. These deals include fixed pricing, price floors, and ceilings. This is atypical for memory companies and does suggest a potentially new dynamic for these cyclical companies.

Ethan Tan, a memory consultant, is forecasting price hikes in the 40% to 45% range next year, and consumers are already feeling the impact. Apple recently announced higher prices for many of its core products due to high memory costs.

In May, Sandisk CEO David Goeckeler said he expects a supply shortage for memory "for a long period of time." He also said he wants to reduce the company's cyclicality, if possible.

"Or at least when the cyclicality comes, have different techniques to deal with it than we have in the past," he told investors at the time.

Now, it's always dangerous for investors to think this time is different because history has a nasty way of catching up with investors, even if it doesn't always repeat itself exactly.

Investors should also remember that the market pulls growth forward, so Micron and Sandisk's prices likely reflect, at least to some extent, the massive demand expected for memory this year and in 2027.

Both companies should continue to deliver strong results in 2027, but the slightest hint that supply is catching up to demand could trigger a big sell-off in these stocks. I don't know if or when it will happen, but it's something investors should be on high alert for.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Micron Technology, Nvidia, and Palantir Technologies. The Motley Fool has a disclosure policy.