The current technology bull market is nothing short of spectacular. Despite inflation, trade, and geopolitical concerns, the tech-heavy Nasdaq 100 Index ETF (QQQ) is up a staggering 30% from its late March lows and is working on its ninth weekly gain out of the previous 10.
What’s driving tech stocks? The AI boom. The current AI boom is witnessing unprecedented spending, with AI big tech hyperscalers spending ~$750 million in capital expenditures (CAPEX) this year on AI data centers and infrastructure (with expectations for more than $1 trillion a year in 2027 and 2028).
Memory Sector Experiences Supercycle
The breathtaking AI spending has reverberated throughout the U.S. and global economies. However, certain industries have benefited more than others. Thus far, the biggest beneficiaries of the AI buildout have been high-performance memory companies like Micron (MU) and SanDisk (SNDK).
AI models mostly operate on NVIDIA’s (NVDA) best-in-breed graphics processing units (GPUs). These GPUs take complex pieces of data, train them, and make sense of them. These AI models (like large language models) rely on billions of algebraic variables called weights. To process a single prompt, the GPU must continuously reference these weights. Standard memory solutions do not store enough data to enable AI training, but SNDK and MU’s technologies do.
Memory Demand Outstrips Supply
Currently, global demand for memory is so robust that most Wall Street analysts predict severe supply shortages for at least 2 years. These supply shortages have triggered unprecedented pricing power for SNDK and MU. As a result, Zacks Consensus Estimates expect explosive EPS growth for these companies. Below is a look at the Zacks Consensus Estimates for SanDisk:
Image Source: Zacks Investment Research
SNDK/MU: True Market Leaders
SanDisk and Micron are what I would call “true market leaders.” TMLs have the magic elixir of liquidity, bullish catalysts, hyper-earnings growth, and robust price and volume action. Over the past year, the performance in these two companies has been unbelievable, with MU rising 851% and SNDK soaring a staggering 4,185%!
Image Source: Zacks Investment Research
Climax Moves Coming?
By now, with the explosive price action, fundamentals, and AI hype, Wall Street investors and even retail investors have caught on. However, that does not necessarily mean the underlying stock moves are over. In fact, leaders like MU and SNDK usually end with fireworks, not a whimper. My best guess is that these stocks are at the beginning of their climactic, blow-off top moves (which could yield massive gains in a short period). To learn more about the nuts and bolts of a climax move, read my article where I covered the climax moves in MicroStrategy (MSTR) and Qualcomm (QCOM).
Bottom Line
While value-conscious investors might look at the multi-hundred percent gains in Micron and SanDisk and think they missed the boat, history tells a different story. True Market Leaders backed by hyper earnings growth and severe global supply shortages rarely exit the stage quietly; they finish with a bang. As massive liquidity and AI hype converge, we are likely witnessing the opening innings of a classic, vertical blow-off top.
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QUALCOMM Incorporated (QCOM): Free Stock Analysis Report
Micron Technology, Inc. (MU): Free Stock Analysis Report
NVIDIA Corporation (NVDA): Free Stock Analysis Report
Sandisk Corporation (SNDK): Free Stock Analysis Report
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Strategy Inc (MSTR): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).