Key facts
- Memory stocks, previously the market's hottest trade, have experienced a significant downturn.
- The Roundhill Memory ETF is down 23% from its peak.
- Samsung's record profit and strong forecast did not impress investors, leading to a sell-off.
- Concerns about companies overspending on AI infrastructure and elevated memory chip prices are contributing to the decline.
- Geopolitical tensions, including the US-Iran ceasefire situation, have added to market nervousness.
- Some strategists predict a rotation back to AI hyperscalers from chipmakers due to valuation differences.
Memory stocks, which had been the market's hottest trade for much of the year, have recently experienced a significant downturn. The Roundhill Memory ETF, tracking various memory companies, is down 23% from its peak. Major players like Samsung, SK Hynix, SanDisk, and Micron have also seen substantial declines, with many now in bear-market territory.
The recent selling pressure appears to have been initiated by Samsung's earnings report. Despite achieving record profit and a strong growth forecast, the results were not enough to impress investors, leading to a sell-off. This episode highlighted concerns that companies may be overspending on the AI buildout and that memory chip prices are elevated.
Geopolitical tensions have also contributed to market nerves. President Donald Trump's latest calling-off of the US-Iran ceasefire exacerbated worries, as traders had been pricing in a resolution. If the conflict is prolonged, inflationary concerns could resurface, potentially impacting the AI trade further.
Furthermore, a growing number of Wall Street strategists are calling for a rotation back to AI hyperscalers from chipmakers. This view is driven by valuation arguments, with some hyperscalers appearing relatively cheap compared to chipmakers that are testing upper valuation bounds. Mike Wilson of Morgan Stanley and Ben Snider of Goldman Sachs are among those predicting a correction in chipmakers and a reversion to hyperscalers.