Morgan Stanley says memory sell-off a buying opportunity as prices rise 25%

The recent rout in memory chip stocks has erased hundreds of billions in market value, but Morgan Stanley says the sell-off ignored a critical fact: data center memory prices are still accelerating.

"DRAM and NAND industry demand continues to significantly exceed industry supply, and tight conditions will persist beyond calendar 2027," Micron Chief Executive Officer Sanjay Mehrotra said on the company's fiscal third-quarter earnings call.

Morgan Stanley's Joseph Moore, after走访 data center procurement channels last week, estimates third-quarter data center memory prices will rise at least 25% from the second quarter — above both the bank's own forecast and consensus. That follows a roughly 70% sequential jump in DRAM prices during the first quarter and more than 40% in the second, as quarterly industry revenue swelled from about $46 billion a year ago to more than $200 billion.

The call puts Morgan Stanley at odds with a market that has punished memory names over the past two weeks. Micron Technology Inc. has fallen 14% in the past week and 19% from its 52-week high of $1,254.81, even after reporting fiscal third-quarter revenue of $41.46 billion — up 346% from a year earlier — with gross margins of 84.9%. The stock now trades at $848.95, implying a market capitalization of $1.11 trillion.

The sell-off was triggered by a confluence of familiar fears: decelerating price growth, rising capital expenditure, customer de-speccing, and the planned $8.5 billion initial public offering of Chinese competitor CXMT. But Morgan Stanley argues these risks were all foreseeable a month ago and do not constitute new information. "Everyone knew this weeks before the stock peaked," Moore wrote.

The bank's channel checks found that cloud customers are paying premiums for six-week delivery lead times — a sign of genuine capacity constraints rather than inventory hoarding. AI compute spending is growing at more than 50% annually, dwarfing the 3% to 5% growth in personal computer and smartphone markets that historically drove memory cycles. As AI's share of total demand expands, the gap will only widen.

The structural shift is visible across the supply chain. HBM4's manufacturing complexity consumes significantly more wafer capacity than prior generations, and Nvidia's upcoming Rubin Ultra platform will double HBM content per chip. On the NAND side, capital expenditure remains unusually restrained, with Morgan Stanley noting that even a modest increase next year would not materially expand supply.

The Debate Shifts From Peak to Duration

Morgan Stanley argues the market's focus should move from "how high can peak earnings go" to "how long can elevated earnings persist" — a distinction with significant valuation implications. Long-term supply agreements and customer engineering optimizations are compressing the amplitude of the cycle while extending its length, the bank said. "Several years of rising earnings from current run rates support high valuations more than a single blowout year," Moore wrote.

Micron's results underscore the shift. The company has already shipped more than $1 billion in HBM4 revenue and holds 16 strategic customer agreements covering roughly $100 billion in remaining performance obligations. Mehrotra told analysts that gross margins at the floor of those agreements "will be well beyond the peaks we experienced in prior cycles."

The Bear Case Has Teeth

The risks are not imaginary. CXMT's $8.5 billion IPO could accelerate DRAM supply into a market that memory makers have kept deliberately tight. Micron's capital expenditure is tracking toward $27 billion for fiscal 2026, and the company disclosed a $325 million debt prepayment loss in its latest quarter. Insider selling has skewed toward net sales.

But Morgan Stanley sees the risk-reward as increasingly attractive. The bank estimates that memory stocks' valuation relative to Nvidia and Broadcom has compressed enough to create a buying window. KeyBanc raised its Micron price target to $1,750 during the pullback, implying more than double the current share price.

Peer results confirm the industry-wide pricing surge. Sandisk Corp. posted fiscal third-quarter non-GAAP earnings of $23.41 per share on revenue up 251% year over year, with gross margins of 78.4%. Western Digital Corp., now a pure-play hard disk drive company after the Sandisk spin-off, reported revenue up 45.5% to $3.34 billion with gross margins above 50% for the first time in years.

The memory market is forecast to exceed $1 trillion by 2027, up from more than $800 billion this year, according to McKinsey & Co. The AI semiconductor market could reach $1.5 trillion to $1.8 trillion by 2030, with memory processors accounting for nearly 30% of the total.

For investors, the question is whether the recent pullback represents a genuine inflection point or a buying opportunity in a structurally tight market. Morgan Stanley's answer is clear: the latter.

This article is for informational purposes only and does not constitute investment advice.