Memory Stocks Rise, SanDisk Gains Over 3% Supported by AI Spending Expectations and Price Resilience

TradingKey - On October 27, Eastern Time, expectations of AI capital expenditures and continuing rises in memory prices provided support for memory stocks that have recently been under pressure.

As of press time, Western Digital (WDC) rose 6.08%, Seagate Technology (STX) gained 4.42%, SanDisk (SNDK) climbed 2.97%, Micron Technology (MU) advanced 1.00%, and SK Hynix (SKHY) added 0.99%.

Previously, market concerns over the return on AI investment and the sustainability of the memory price-hike cycle had caused the stock prices of these five companies to pull back significantly since the third quarter. Behind this rebound, investors are re-evaluating whether a slowdown in the pace of price hikes really means the earnings cycle has peaked.

Bernstein: Slower Gains Don't Mean a Cycle Shift

Bernstein noted in a recent research report that the deceleration in storage price increases is partly due to a high comparison base following an unusual surge in the first half of the year, as well as the impact of price caps in long-term agreements.

The firm expects NAND contract prices to still rise 15% to 20% quarter-over-quarter in the fourth quarter, placing the increase in the 90th to 95th percentile of gains over the past 15 years. On a per-gigabyte basis, prices are projected to rise by about 5 cents in both the third and fourth quarters, with absolute price increases remaining at historically high levels. As unit costs do not change in lockstep with selling prices in the short term, price increases will still help expand profit margins.

Meanwhile, long-term agreements limit gains from price increases while providing downside protection. Over half of SanDisk's fiscal year 2027 bit shipments are covered by agreements, where price floors help reduce future revenue uncertainty. Bernstein also noted that price increases for nearline hard drives have been relatively modest, with room for further upside, and maintained "Outperform" ratings on Seagate, Western Digital, and SanDisk, with its fiscal year 2027 earnings estimates for all three companies about 12% above market consensus.

Cloud Provider Spending and Earnings to Test Rally Foundation

On the demand side, Meta (META) raised its annual capital expenditure plan last week and intends to raise up to $103 billion through an additional share placement on October 26.

Currently, the market generally expects Microsoft (MSFT), Amazon (AMZN), and Google parent Alphabet (GOOGL) to maintain or raise their AI spending plans in their earnings reports this week, providing support for sustained growth in storage orders.

Seagate will report earnings after the close on Tuesday, followed by SanDisk on Thursday. Analysts expect the net profit and earnings per share of the two companies to roughly triple from the prior-year period and grow over 6,100% year-over-year, respectively.

However, Western Digital saw its stock fall even after its previous results and guidance beat expectations, indicating that the market is paying closer attention to how long earnings growth can be sustained. Whether the subsequent rally can continue will depend on whether cloud providers' investment plans, together with storage companies' order and price outlooks, can jointly support future earnings.