Has the storage chip sector hit a bottom now, or is it at a peak?
There are currently two opposing views in the market, and both seem to make some sense. Key memory stocks like SK Hynix, SanDisk, Micron, and Western Digital, after experiencing a recent pullback, are stuck in an awkward position where their stock prices are neither here nor there—it seems there's considerable room for movement both upwards and downwards.
And the latest earnings reports from SanDisk and Western Digital released a couple of days ago might just provide the answer to this question.
1. Explosive Earnings, Yet Stock Prices Crashed: This Time, It's "Expectations" That Got Punished
First, let's see just how impressive the earnings reports themselves were.
On August 5th after the market closed, SanDisk announced its Q4 results: revenue of $8.965 billion, a staggering year-over-year increase of 372%, gross margin of 84.6%, EPS crushed market expectations, and it conveniently announced a $14 billion share buyback plan. Western Digital was equally outstanding: fourth-quarter net profit soared over 12 times year-over-year, adjusted EPS reached $3.56, comprehensively beating market expectations.
However, after such excellent results were announced, the stock prices of both companies quickly fell, dragging down the entire storage chip sector once again.
Where's the problem? A closer look at the reports reveals that while the revenue figures were excellent, the guidance disappointed the market. In short, the trigger for the decline was the lack of being "even better."
This is a classic case of punishing expectations. The market is no longer focused on whether profits are growing, but on whether profits can continue to significantly exceed expectations. Capital is already trading ahead of one thing: the rate of increase in AI storage profitability is nearing its peak.
2. The First Possible Early Warning Signal of a Peak May Have Already Appeared
And this might just be the first early warning signal of a peak for storage chips: revenue hasn't peaked yet, but the expectations reflected in various companies' earnings reports have essentially peaked.
Note the subtlety of this signal—the peak in profits hasn't been confirmed by the reports yet, but valuations have already started trading ahead of the peak. The market never waits for you to present hard evidence; it trades on changes in the slope.
After the first signal appears, there are several other warning signals worth keeping a close eye on: when will the rate of increase in memory prices start to slow, when will gross margins begin to decline, and when will cloud vendor orders start to be revised downwards. The materialization of any one of these three signals would mean the peak in fundamentals is beginning to be validated by data.
3. Can We Buy the Dip Now? First, Look at Nvidia's Past Journey
Since expectations have peaked, does that mean it's time to buy the dip instead?
If the "buying the dip" you're thinking of means going all-in, now is clearly not the time. The reason is simple: signals of a valuation peak have appeared, but signals of a fundamentals peak have not yet materialized. And if you're thinking of going all-in to catch the bottom, it's wise to learn from history by looking at the growth curve of the AI old-timer, Nvidia.
After the explosion of large AI models, a structural supply-demand imbalance for GPU compute power emerged, and Nvidia's stock price rose over tenfold in a little over a year. During this process, its gross margin soared from 43% to 78% by April 2024, then peaked. For a long year after that, Nvidia's stock price consolidated sideways—although its gross margin recovered somewhat later, it never broke to new highs, hovering around 75%. During this period, the upward slope of Nvidia's stock price clearly slowed, only slightly outperforming the broader market.
Memory stocks are now facing an almost identical situation. Over the past year, the gross margin of the memory sector has risen from 50% to 80%. With fundamental improvements combined with capital market hype, and under the effect of multiple positive factors, stock prices have increased tenfold or even several dozen fold. Hoping to replicate another round of such gains in the future is unrealistic.
So what is the real signal to position? It's waiting for gross margins to decline, expectations to be beaten back down to the bottom, and valuations to be sold off again. That's when we can start talking about buying the dip.
4. Final Thoughts: How to Trade in This Awkward Position Before the Signals Materialize?
To summarize the conclusion: the peak in expectations has appeared, the peak in fundamentals has not yet arrived, and the time for going all-in has not come. This means storage stocks are likely to see repeated back-and-forth struggles in a "neither here nor there" range going forward—every earnings report, every piece of price data, every cloud vendor order could trigger a round of sharp rises or falls, with the direction impossible to confirm before the signals materialize.
This kind of market is the most agonizing: staying out risks missing a rebound, being heavily invested risks being caught in a deep correction, and going all-in is essentially gambling your principal on a signal that hasn't yet appeared.
Faced with this situation of "unclear direction and extreme volatility," the option-buying function of the BIT brokerage happens to be the right prescription: whether betting on another leg down after earnings or gambling on an oversold rebound, you can participate with a small cost, with the maximum loss locked in at the premium the moment you place the order—before the signal is confirmed, you're exchanging a limited cost for participation rights, rather than gambling your full capital on a direction.
The margin financing function is prepared for "after the signal materializes": when gross margins decline and the real bottom signal appears, you don't have to be limited by your principal size; you can quickly amplify your position to capture the recovery rally, fully utilizing the certainty earned through waiting. While market signals remain unclear, investors should fully assess risks, carefully consider whether to participate and what trading tools to use based on their own investment goals, risk tolerance, and trading experience.
Disclaimer: The content of this article is written by an external author and represents the personal views of the author only. It does not represent the position of BIT and does not constitute any investment, legal, tax, or other professional advice. The securities, industries, and market analysis mentioned in the article are for informational sharing only and do not constitute any investment advice or guarantee of future performance. Financial markets carry risks, and investment requires caution. Investors should make independent judgments based on their own circumstances and bear investment risks themselves.
