Memory stocks plunged as much as 25% last week. How to buy the dip.

Memory stocks suffered one of their sharpest selloffs in months last week. In the October 12-16 trading week, SK Hynix’s American depositary receipts slid 19.3%, while Sandisk lost 17.9% and Micron dropped 14.6%. One catalyst was an announcement from China’s ChangXin Memory Technologies (CXMT), which reported progress on a new memory manufacturing technology and promised to launch a server memory product based on it by the end of the year. The news is a sensation in South Korea, where semiconductor exports reached a record $60.3 billion in September, accounting for almost half of the country’s total export revenue.

The news from CXMT concerns only part of the market: conventional server RAM. That is a different from specialized high-bandwidth memory (HBM) used in AI accelerators or NAND flash memory used for data storage in solid-state drives (SSDs). The potential emergence of a stronger Chinese competitor therefore poses different risks for the companies caught up in the selloff.

Chinese competition is already a reality. Morgan Stanley estimates that CXMT is mass-producing server memory and holds around 20% of China’s HBM market for AI applications, as outlined in a note seen by Oninvest. But launching a product based on new technology does not necessarily mean the company can manufacture it at scale or at a lower cost than its rivals. Meanwhile, Citi believes mass production using the new technology is unlikely to begin before 2028, while costs could be 10-20% higher than those of market leaders. CXMT is also constrained by restrictions on supplies of advanced manufacturing equipment. Its announcement therefore offers little reason, for now, to expect the memory shortage to ease rapidly or prices to fall.

For now, demand for memory continues to outstrip supply. Morgan Stanley estimates that substantial volumes of future shipments are already committed under long-term contracts, while a meaningful increase in RAM production is not expected until the second half of 2027. That supports incumbent manufacturers, but CXMT is not the only concern weighing on shares of memory-chip manufacturers. Investors are also worried about the massive sums being spent on AI, as Reuters reports. After a strong rally in memory stocks, news of a potential Chinese competitor may simply have given investors another reason to take profits.

The selloff also hit smid-cap companies in the memory supply chain. We have selected three names that, in our view, are worth watching after the sector-wide decline last week. One operates in the NAND market, another supplies chip-testing equipment, including for HBM, and the third sells memory modules and builds AI computing infrastructure. Their exposure to competition from CXMT varies. We examine what is supporting each business and what risks could stand in the way of a rebound in their share prices.

Silicon Motion (SIMO)

Silicon Motion develops controllers that manage how data is written to and read from SSDs. In the second quarter, its revenue jumped 127% year over year to $451 million, the gross margin reached 50.2%, and adjusted earnings came in at $2.43 per ADS. For the third quarter, the management has guided for revenue of $519-541 million. The earnings are due after the market close on October 28, with the earnings call scheduled for October 29.

One growth driver is boot drives for Nvidia BlueField processors used in AI servers. These drives store the software needed to start up the system. Silicon Motion expects demand to grow as shipments of the next generation of BlueField expand in the second half of this year. JPMorgan forecasts that the market for these drives will grow by more than 160% annually in 2026-2028 (according to a note seen by Oninvest).

Silicon Motion's ADRs fell 19.9% in the October 12-16 trading week. The company does not manufacture RAM, so CXMT's new technology poses no direct competitive threat to its products. The business faces other risks, however. A shortage of NAND flash memory could constrain production of the storage devices for which Silicon Motion supplies controllers. The management also acknowledges that high NAND prices and limited supply are putting pressure on its consumer business.

Silicon Motion's ADRs are up 133% year to date. According to MarketWatch data, all 11 analysts covering the stock have “buy” calls. The average target price is $369.70 per share, implying around 73% upside from Tuesday's close.

Cohu (COHU)

Cohu makes equipment used to test semiconductors and detect defects. In the second quarter, revenue rose 38% year over year to $149 million, while adjusted earnings came in at $0.26 per share. For the third quarter, the management has guided for revenue of $163-177 million. The next earnings report, expected October 28, should offer insight into whether demand is holding up, whether new projects are translating into revenue, and how memory prices are affecting profitability. Cohu shares fell 25.5% in the October 12-16 trading week.

One growth driver is equipment for testing high-performance processors and AI memory. In the second quarter, the company shipped additional HBM inspection systems to a U.S. chipmaker, according to the management. Cohu estimates its potential annual revenue opportunity from high-performance computing projects at around $850 million. These are not firm orders, however. Its products have so far been qualified by four customers representing around $190 million in potential annual revenue, while the remaining projects are at earlier stages of development.

Because Cohu supplies equipment rather than memory chips, CXMT's expansion does not pose the same direct competitive threat that it does to memory manufacturers. Its performance nevertheless depends on customers' willingness to expand production capacity. The company's 10 largest customers accounted for 60% of revenue in 2025. Demand is also recovering unevenly: automotive orders fell 24% year over year, while Cohu remained unprofitable on a GAAP basis in the second quarter.

Cohu shares are up around 129% year to date. According to MarketWatch data, eight Wall Street analysts have “buy” ratings on the stock. The average target price is $70.90 per share, implying around 33% upside from the last close.

Penguin Solutions (PENG)

Penguin supplies server RAM modules and builds and operates AI computing systems. Of the three companies selected, its business is the most closely tied to conventional server memory, the market CXMT is targeting.

In the fourth quarter of its fiscal 2026, Penguin's revenue jumped 68% year over year to a record $567 million, while sales in its Integrated Memory business surged 158% to $340.8 million, accounting for around 60% of total revenue. Adjusted earnings reached $1 per share versus $0.43 a year earlier. The stock lost 25.1% in the October 12-16 trading week.

Another growth driver is AI infrastructure development. For fiscal 2027, the management forecasts 30-50% revenue growth in Penguin's high-performance computing business. The company is counting primarily on demand from specialized cloud providers that supply computing power for AI.

One new customer has selected Penguin to deploy and operate a computing facility in Norway equipped with 36,000 graphics processing units. According to the management, the customer has a $10 billion agreement to provide computing capacity to a leading AI lab. Penguin has not disclosed the customer's identity. However, Benzinga noted that the description matches Norway's Volta Infrastructure project. Bloomberg, citing sources, reported that Anthropic is the buyer of Volta's computing capacity. Neither company has confirmed Penguin's involvement in the project.

AI infrastructure development is expanding Penguin's business, but it has not eliminated its dependence on the memory market. BofA considers a sharp decline in memory prices one of the main risks, as it could weigh on the company's revenue and margins (the note was seen by Oninvest). Penguin is expected to report its fiscal first-quarter results in early January.

Penguin shares are up around 188% year to date. According to MarketWatch data, the stock has eight “buy” ratings versus one “hold” and one “sell.” The average target price is $85.60 per share, implying around 50% upside from the last close.

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