Memory stocks cool off in 2H26 amid AI spending doubts

Memory-chip and data-storage manufacturers Sandisk, Micron, Seagate, and Western Digital are falling out of favor with investors. Their shares were among the market’s biggest gainers in the first six months of the year, but now rank in the bottom 10% of the S&P 500 by performance in the second half, Bloomberg reports.

From the start of the third quarter through Monday’s close, Sandisk and Western Digital shares fell about 40%, Seagate lost 30%, and Micron dropped almost 20%. All four stocks, however, remain well ahead year to date. Sandisk leads the group with a 452% gain.

The first-half rally in memory stocks was driven by seemingly insatiable demand for AI infrastructure components, Bloomberg notes. Since then, however, momentum has turned against the manufacturers as investors question how long companies can sustain their spending commitments.

Even strong quarterly results have so far failed to reverse the slide, Bloomberg writes. Last week, Western Digital beat expectations and increased its dividend. Yet its shares fell 3% the day after the report as investors worried that AI spending might have peaked. Micron beat profit and revenue forecasts in late September, and the management gave an upbeat outlook, but the stock has fallen 14% in October.

“The market is telling you that expectations are changing for how long the earnings boom is going to last for these companies,” said Joe Tigay, a portfolio manager at Equity Armor Investments.

Seagate will report after the closing bell on Tuesday, with analysts expecting its net income to triple. Sandisk will release results for its fiscal-2027 first quarter on Thursday, with earnings per share projected to rise more than 6,100%. In Tuesday trading, Seagate shares rose almost 5%, Sandisk and Micron gained 3%, and Western Digital jumped 7%.

To support their stocks, memory-chip makers need to do more than deliver strong results for the quarter just ended. They also need to follow through in the next quarter and the one after that, said Andre Bakhos, president of Ingenium Analytics.

Meanwhile, analysts expect revenue growth at Seagate and Sandisk to slow in the coming years. According to forecasts cited by Bloomberg, Seagate’s revenue will rise about 56% in fiscal 2027, which ends in June, before growth slows to 37% in fiscal 2028 and 20% in fiscal 2029. Sandisk’s revenue is projected to grow 140% in fiscal 2027, but growth is expected to slow to 20% in fiscal 2028, followed by a possible 7% decline in fiscal 2029.

The sector’s stocks remain inexpensive, however. Micron trades at a price/earnings ratio of about 5 based on estimated earnings over the next 12 months, which makes it the second-cheapest stock in the S&P 500 after Charter Communications. Sandisk’s multiple is below 6. Western Digital trades at about 12 times estimated earnings and Seagate at 15, versus about 19 for the S&P 500 and 20 for the Nasdaq 100. Analysts’ consensus target prices imply more than 70% upside for Seagate over the next 12 months and more than 80% for Sandisk. Among the 74 stocks in the S&P 500 tech sector, Micron, Seagate, Sandisk, and Western Digital rank in the top seven by potential upside, according to Bloomberg data.

“People rightfully get nervous when you see a selloff, because you don’t know if it’s the top or just some air coming out before another cycle higher,” Bakhos said. “Profit takers are winning the battle now, but I think the long-term holders are in a strong position.”