AI hardware "hottest track" encounters spiritual questioning: How long can storage chip stocks remain hot?

Note that in 2025, the hottest sector in the stock market is still thriving in the new year, but the relentless momentum has left some Wall Street professionals wondering if a market reversal is imminent. Memory chip manufacturers were the best-performing sector in the S&P 500 index last year, as massive funding for building artificial intelligence infrastructure gradually seeped into some traditionally quieter areas of the technology industry. Led by companies such as SanDisk (SNDK.US), Western Digital Corporation (WDC.US), Seagate Technology Holdings PLC (STX.US), and Micron Technology, Inc. (MU.US), this sector continues to lead the index in early 2026. After NVIDIA Corporation CEO Huang Renxun emphasized the need for more memory and storage in the AI ecosystem, SanDisk soared 16% on the first trading day of the year and surged 28% again on Tuesday. The stock rose 1.1% on Wednesday, with a cumulative gain of 49% in the first four trading days of the year. Meanwhile, Western Digital Corporation, Seagate, and Micron all recorded double-digit gains at the start of 2026, but all three stocks saw a decline on Wednesday. SanDisk's stock price skyrocketed by 559% in 2025, leading the S&P 500 index, with Western Digital Corporation, Micron, and Seagate following closely behind, occupying the top four spots on the index's gainers list. Rise in storage and memory chip stocks However, Jessica Novinsky, Chief Investment Strategist at Mackay Consulting's Outsourced Portfolio, believes that modeling the growth prospects of these companies is "extremely difficult" when a transformative technology is evolving in real time. The company manages around $29 billion in assets. "There may be retail investors anxious not to miss out on this wave of gains, hence making hasty decisions," she said. The main driving force behind the rise in memory chip stocks is the AI infrastructure spending boom, as well as increasing demand leading to higher prices for components such as memory chips. But many investors question whether such huge gains are justified, especially as more people doubt whether AI-related capital expenditures can continue at the current pace without significant signs of returns. Peter Anderson, Chief Investment Officer at Anderson Capital Management, which manages $4.5 billion in assets, said, "Given the backdrop of AI data center construction, the recent strong performance seems reasonable on the surface, but I am increasingly concerned that the market's expectations for future demand are too far ahead and underestimate the risks of historical cyclicality, excess capacity, and price pressures." This upward trend may be difficult to sustain in the short term. For example, both SanDisk and Micron have Relative Strength Indexes (RSI) exceeding 70, which some technical strategists see as a signal of overbought stocks. Low relative valuations Valuations in this sector are often lower than other technology companies, making them appear relatively cheap. Micron has a price-to-earnings ratio of only 10 times expected earnings, while SanDisk is around 20 times. Seagate and Western Digital Corporation are both below 25 times, which is in line with the Nasdaq 100 index. The "Big Seven" of the US stock market have an expected price-to-earnings ratio of about 29 times. However, despite these stocks appearing cheap, concerns about the sustainability of the factors driving the rise (AI spending and strong demand) make some professional investors hesitant. "If you agree with my view that there is overbuilding in AI infrastructure, then you should stay away," Anderson said. "If a company announces they will slow down spending, it could trigger a wave of selling." Nevertheless, many Wall Street analysts remain optimistic that major AI spenders like Microsoft Corporation, Amazon.com, Inc., Alphabet, and Meta will stick to their plans. These four tech giants outlined aggressive capital spending plans in their latest earnings reports, indicating that this trend will continue at least through much of 2026. Micron's upbeat outlook in its last earnings report triggered significant gains. Bank of America Corp analyst Valmxi Mohan wrote in a report on January 4th, "As multimodal AI becomes more prevalent, we expect a significant increase in generated data, which should drive demand for low-cost storage," benefiting Seagate and Western Digital Corporation. At the same time, "the need to store more data on edge devices and the need for fast access to data can drive more use of NAND storage," benefiting SanDisk. Likewise, Needham expects that Micron's production of high-bandwidth memory chips will continue to "reign over AI memory" in the next 5-10 years. The company upgraded Kioxia to a related investment target and expressed optimism for Camtek Ltd, Onto Innovation, and Kulicke Soffa Industries, which all showed strong performance at the beginning of 2026. For investors, the question is which side of the risk they stand on, and it's not a simple one. For example, Novisky of McKay Consulting remains positive on the AI theme. However, she also worries that such massive gains could lead to higher downside for these companies if the market narrative begins to crack. "This story could be true, and some stocks have indeed risen too fast, too high," Novinsky said. "The problem is we don't know which are the former and which are the latter." Samsung's operating profit hits a historic high due to booming memory market Global demand for AI servers has surged, driving up storage chip prices and more than doubling Samsung Electronics' quarterly profit to a historic high. The South Korean conglomerate reported preliminary operating profit of 20 trillion Korean won for the three months ending in December, a 208% year-on-year increase, surpassing analysts' average expectations.