Rapid demand and subsequent higher prices for memory chips are unlikely to end anytime soon, Morgan Stanley warns.
The call: Morgan Stanley analyst Erik Woodring caught our attention with a new note out on Tuesday on ways to play the memory chip price increase.
“First, it’s increasingly clear enterprises are viewing memory ‘Chipflation’ as a multi-year structural headwind,” Woodring wrote. “Rather than delaying or deferring hardware purchases until pricing cools, enterprises are quickly prioritizing/accelerating purchases of PCs, servers and storage arrays to lock in the most favorable prices and limit supply shortages, aka the ‘Fear of Missing Procurement’.”
He added that he believes enterprise hardware names, especially those exposed to the server and storage themes, have further upside to analyst earnings estimates.
Woodring is bullish on Hewlett Packard Enterprise (HPE), Everpure (P), TD Synnex (SNX), and Lenovo (LNVGY).
“Hardware stocks are up over 100% since the start of 2025 and in the US, trade at an aggregate 25x P/E, nearly double the prior peak multiple. … In other words, we are probably closer to the end than the beginning of the upcycle, and Hardware stocks are historically very expensive,” Woodring wrote.
“But not all stocks are created equal,” he added, “and rather than chasing names that have already materially re-rated, trade well-above historical ranges, and are over-exposed to cyclical tailwinds, we want to remain disciplined. We still see opportunities at this stage of the cycle to own quality names with exposure to more durable infrastructure spending, supported by structural valuation tailwinds, and further margin expansion.”
What else you need to know: JPMorgan strategist Jay Kwon is also out with a take on the memory chip space this week. He doesn’t think the chip shortage will be over for at least two years.
“Higher memory total addressable market driven by both pricing and volume, S-D shortage continues for the next two years,” Kwon wrote in a note on Monday. “Memory demand broadening out from GPU to CPU appears to have been underestimated by investors (conceptually well known but actual S-D impact underlooked) and remains a key source of potential upward revisions to demand.”
The CEO of memory chip play Sandisk (SNDK) perhaps put it best on his earnings call last week about the state of the market.
“We spent a lot of time over the last two or three quarters really working very deeply with our largest customers on committing demand,” Sandisk CEO David Goeckeler said. “We have over four years of visibility now. We feel very good about where the franchise is.”
