Stocks in the memory sector fell by up to 25% last week. Is it worth buying on the dip?

Last week, shares of memory manufacturers experienced one of the sharpest sell-offs in recent months. At the close of trading on October 12–16, SK Hynix’s American Depositary Receipts (ADRs) fell 19.3%, SanDisk’s shares dropped 17.9%, and Micron’s shares declined 14.6%. One of the triggers was an announcement by China’s ChangXin Memory Technologies (CXMT)—the company reported progress on a new memory manufacturing technology and promised to release a server product based on it by the end of 2026. This news is particularly sensitive for South Korea: in September, semiconductor exports brought the country a record $60.3 billion—nearly half of its total export revenue.

However, the news about CXMT concerns only a portion of the market—standard server RAM. This is a different segment from specialized HBM memory for AI accelerators or NAND for data storage in SSDs. Therefore, the potential rise of a Chinese competitor poses different risks for companies whose stocks have been hit by a sell-off.

Competition from China is already a reality: According to Morgan Stanley’s estimates, CXMT is mass-producing server memory and holds about 20% of the Chinese market for HBM memory used in AI (the report is available at the Oninvest editorial office). However, the launch of a product based on new technology does not yet mean that the company is ready to supply it in large volumes and at a lower price than its competitors. Citi believes that mass production using the new technology is unlikely to begin before 2028, and costs could turn out to be 10–20% higher than those of the market leaders. The development of CXMT is also hampered by supply constraints on state-of-the-art equipment. Therefore, the company’s announcement does not yet provide grounds to expect a rapid resolution of the memory shortage or a decline in memory prices.

For now, demand for memory exceeds supply. According to Morgan Stanley’s estimates, significant volumes of future shipments are already locked into long-term contracts, and a noticeable increase in RAM production is not expected until the second half of 2027. This supports the business of existing manufacturers, but their stocks are under pressure not only from news about CXMT: investors are concerned about massive spending on AI, Reuters reports. Following a sharp rise in stock prices, news of a Chinese competitor may have provided an additional reason to take profits.

A sell-off in small- and mid-cap companies in the memory supply chain. We’ve selected three companies that, in our view, are worth watching following the sector’s broad decline. One of them works with NAND, another supplies equipment for testing chips, including HBM, and the third sells memory modules and builds computing infrastructure for AI. Their dependence on CXMT as a competitor varies—we’ve analyzed what underpins their businesses and what risks could hinder a recovery in their stock prices.

Silicon Motion develops chips that control data writing and reading in SSDs. In the second quarter of 2026, its revenue grew 127% year-over-year to $451 million, its gross margin reached 50.2%, and its adjusted earnings per American Depositary Share (ADS). For the third quarter, the company forecasts revenue of $519 million to $541 million. Silicon Motion will hold its next investor call on October 29.

One of the drivers of growth is boot drives for Nvidia BlueField processors, which are used in AI servers. These drives store the software needed to boot the system. Silicon Motion expects demand to increase as shipments of the new generation of BlueField expand in the second half of 2026. According to a JPMorgan forecast, the market for these drives will grow by more than 160% annually from 2026 to 2028 (the report is available at Oninvest).

During the week of October 12–16, Silicon Motion’s stock price fell by 19.9%. The company does not manufacture RAM, so the new CXMT technology does not pose direct competition to its products. However, the business faces other risks: a shortage of NAND flash memory could limit the production of storage devices for which Silicon Motion supplies chips. In addition, management acknowledges that high prices and limited supply of NAND are putting pressure on the consumer segment of the business.

Silicon Motion's American Depositary Receipts (ADRs) have risen 133% since the beginning of the year. According to MarketWatch, all eleven analysts covering the company's ADRs recommend buying them. The average price target is $369.7, which implies an increase of nearly 73% from the closing price on October 20.

Cohu manufactures equipment for testing chips and detecting defects. In the second quarter of 2026, its revenue rose 38% year-over-year to $149 million, and adjusted earnings per share were $0.26. For the third quarter, the company forecasts revenue of $163–177 million. Its upcoming earnings report, expected on October 28, will reveal whether demand remains strong, whether new projects are translating into revenue, and how memory prices are affecting the business’s profitability.

During the week of October 12–16, Cohu’s stock price fell by 25.5%. One of the growth drivers is equipment for testing high-performance processors and memory for AI. In the second quarter, according to management, Cohu delivered additional HBM memory testing systems to a U.S. chip manufacturer. The company estimates potential annual revenue from high-performance computing projects at approximately $850 million. However, these are not signed orders: so far, its solutions have been validated by four customers, who could generate about $190 million per year. The remaining projects are in earlier stages.

Since the company supplies equipment, CXMT’s expansion does not pose the same direct competitive threat to it as it does to memory manufacturers. However, its performance depends on customers’ willingness to expand production. The top ten customers accounted for 60% of revenue in 2025. At the same time, demand is recovering unevenly: orders in the automotive segment fell by 24% year-over-year, and under GAAP standards, Cohu remained unprofitable in the second quarter.

Cohu's stock price has risen by nearly 129% since the beginning of the year. According to MarketWatch, eight Wall Street analysts recommend buying the company's stock. The average price target is $70.9, which implies a one-third increase from the last closing price.

Penguin supplies server RAM modules and also builds and maintains computing systems for AI. Of the three selected companies, its business is most closely tied to standard server memory, which is CXMT's target market.

In the fourth fiscal quarter of 2026, revenue rose 68% to a record $567 million, while sales in the memory division increased 158% to $340.8 million, accounting for about 60% of total revenue. Adjusted earnings per share reached $1, compared with $0.43 a year earlier. During the week of October 12–16, the company’s stock fell 25.1%.

Another driver of growth is the construction of AI infrastructure. For fiscal year 2027, Penguin forecasts a 30–50% increase in revenue from its high-performance computing segment. The company is counting primarily on demand from specialized cloud providers that offer computing power for AI.

One of Penguin’s new clients has chosen the company to deploy and operate a computing complex in Norway comprising 36,000 graphics processing units. According to company executives, the client has a $10 billion agreement to provide computing power to a leading AI lab. The company has not disclosed the client’s name. However, Benzinga noted that the description matches the Norwegian project Volta Infrastructure. Bloomberg, citing sources, reported that Anthropic is the buyer of Volta’s computing power. Penguin has not confirmed its connection to this project.

The development of AI infrastructure is expanding Penguin’s business, but it has not yet eliminated the company’s dependence on the memory market. BofA considers a sharp decline in memory prices to be one of the main risks, as it could hurt the company’s revenue and margins (the report is available at the Oninvest editorial office). Penguin is expected to report its first-quarter financial results in early January 2027.

Penguin's stock price has risen by nearly 188% since the beginning of the year. According to MarketWatch, the company's stock has eight "Buy" ratings, one "Hold" rating, and one "Sell" rating from Wall Street analysts. The average price target is $85.6, which implies an increase of approximately 50% from the last closing price.