Buying when memory stocks reach new highs is more likely to be profitable than buying when stock prices hit new lows. As long as there are people in the market who question the stock price, it means that the stock still has potential for growth, but the ultimate determinant is the company's earnings ability, not the valuation.
Source: Wall Street See
Author: Huang Yu
The rise of artificial intelligence has already driven up the price of memory stocks, with SK Hynix, the memory giant, seeing its stock price rise more than 60% so far this year. Can memory stocks continue to rise in the future?
Morgan Stanley tells you that you can buy memory stocks at a higher price than at a lower price, but it is best to wait for a pullback before buying.
In its latest research report released on the 25th, Morgan Stanley pointed out that investors generally do not like to buy memory stocks at high prices. However, according to recent surveys, Morgan Stanley believes that the fundamentals of memory stocks are still good and are currently in the middle phase of the market cycle. It is expected that memory stocks will reach new highs in the second half of this year, but investors should wait for the stock price to pull back before further deploying their capital. Morgan Stanley is more optimistic about companies such as SK Hynix, Samsung, AP Memory, and Phison.
The reasons given by Morgan Stanley are as follows:
First, we are still in the middle stage of the memory market cycle. Buying when memory stocks reach their peak has a higher chance of success than buying at their lowest point, as at this stage, there are still many people who doubt the stock price, which means that there is still potential for it to rise.
Second, the key factor determining the future of memory stocks is the company's profitability rather than the valuation. Investors should pay more attention to the actual profitability of the company, rather than relying solely on historical data or current valuation levels to make investment decisions.
Among them, changes in earnings expectations explain the price changes of memory stocks most fully: the more positive the earnings expectations, the better the stock performance. Similarly, the worse the earnings expectations, the worse the stock performance. Given that the stock price is the discounted value of a company's future profitability, better-than-expected fundamentals will bring extra returns to investors. This is particularly evident in the HBM, server DRAM and enterprise-level NAND markets. We believe that the current performance of memory stocks is very reasonable, and we expect that the future growth and fundamentals of the memory industry will be better than expected.
Third, the AI boom has continued to drive strong demand for GPUs from tech giants, with H100 GPU products in short supply and new products such as Blackwell even being booked into mid-next year. The strong growth in demand for GPU products will keep memory product prices high for a period of time, which has also boosted the profit expectations of some HBM memory manufacturers. However, not every company in the memory industry will benefit from this trend, and Morgan Stanley is more optimistic about companies such as SK Hynix, Samsung, AP Memory, and Phison.$NVIDIA (NVDA.US)$Different companies in the memory industry provide opportunities for investors to obtain excess profits due to differences in profitability levels. The different levels of corporate profitability also influence our stock selection strategy in the second half of 2024. Hynix is still our top pick, having established a solid position in the AI memory market, prompting us to maintain our shareholding rating. Meanwhile, Samsung, the other major player, is still playing catch-up tactically. We believe that Samsung currently holds 10% of the HBM market share, which is already reflected in its stock price, and the key to its future stock price will be whether it can expand its HBM market share to 30%.
Editor / Feynman