Why Micron, Sandisk, SK Hynix and other memory stocks are roaring back today?

Memory stocks staged a sharp rebound on Thursday, with Micron, SanDisk and other semiconductor companies posting double-digit gains after encouraging results from Microsoft reignited optimism around artificial intelligence spending and eased concerns that had weighed on the sector in recent weeks.

The rally also came after Samsung Electronics reported a more than 250-fold jump in chip profit and announced multi-year supply agreements with major data centre operators, saying it expects global chip shortages to become more acute and extend into 2028.

While Samsung's commentary failed to fully reassure its own investors about the impact of heavy AI infrastructure spending by technology companies, with its shares closing about 0.7% lower on Thursday, Microsoft's earnings later in the day helped change sentiment for US-listed memory stocks.

Micron MU and SK Hynix shares climbed about 14%, while SanDisk surged 22%. Western Digital gained 15%, and Seagate advanced 13%.

Microsoft results lift semiconductor sentiment

The rebound followed several days of heavy selling across memory stocks.

Earlier this week, the sector had come under pressure after Chinese memory maker CXMT successfully completed its IPO and reports suggested China was making further progress in developing domestic chipmaking equipment like the deep ultraviolet (DUV) lithography machines.

Although industry experts dismissed those developments as overblown in the near term, investor scepticism following earnings from Alphabet and Tesla announced last week continued to weigh on the stocks.

Both companies reported strong revenue growth and highlighted expanding demand for AI-related products and services.

However, their results also reinforced concerns that the industry's largest players were spending at unprecedented levels on AI infrastructure, putting pressure on free cash flow and raising fresh questions over when those investments would begin delivering meaningful financial returns.

Moody's said last week it expects the world's six largest hyperscalers to spend roughly $785 billion this year, rising to nearly $1 trillion in 2027, while cautioning that the eventual return on those investments "is unclear."

Morgan Stanley strategist Mike Wilson noted that investors had increasingly punished memory companies as a proxy for broader concerns surrounding hyperscaler spending.

The selloff was also attributed, in part, to rising tensions between Iran and the US and oil price increases, while uncertainty over the Fed's rate decision also contributed.

However, Microsoft's stronger-than-expected forecasts helped remove the greatest overhang of AI spending getting out of hand.

Microsoft shares surged about 15% after the company projected current-quarter sales and Azure cloud growth above expectations, forecast capital expenditure below analysts' estimates and reiterated that it expects to remain free cash flow positive through fiscal 2027.

The results sparked a broad rally across semiconductor shares, with the iShares Semiconductor ETF (SOXX) rising more than 8%.

Samsung's earnings strengthen investment case for memory makers

Samsung's quarterly earnings further strengthened the investment case for memory manufacturers.

The South Korean company confirmed that DRAM and NAND sales remained at record levels during the second quarter, with operating profit reaching 89.5 trillion won, ahead of analysts' expectations of 88.13 trillion won, as robust AI demand continued to fuel its memory business.

For Micron, the only major US-based memory manufacturer and one of Samsung's key competitors in DRAM and NAND chips, the results reinforced expectations that the AI-driven memory supercycle remains firmly in place.

Samsung also indicated that supply constraints were likely to persist for several more years as demand from AI data centres continues to outpace production capacity.

Analysts remain optimistic on Micron

Thursday's rally also highlighted that investor concerns over hyperscaler spending had not materially altered the industry's long-term fundamentals.

Despite the strong gains, Micron continues to trade around $850, well below the consensus analyst price target of $1,507.38, implying roughly 78% upside from current levels.

Analyst coverage remains overwhelmingly positive, with 45 analysts covering the stock across ratings ranging from Strong Buy to Strong Sell, although recommendations remain heavily skewed toward the bullish side.

Among the most optimistic forecasts is Melius Research analyst Ben Reitzes, who has assigned Micron a $2,200 price target.

Reitzes argues that high-bandwidth memory (HBM) has fundamentally changed Micron's earnings profile by reducing its dependence on traditional DRAM commodity cycles.

He expects HBM3E and next-generation HBM4 supply to remain constrained across all major manufacturers while Micron benefits from multi-billion-dollar non-cancellable supply agreements tied to AI accelerator roadmaps from customers including Nvidia and AMD.

The combination of Samsung's strong results and Microsoft's optimistic outlook suggested that, despite recent market volatility, demand for AI-related memory chips remains robust and supply constraints continue to support pricing across the industry.