The memory stock sector, a crucial component for building AI infrastructure, is experiencing a significant downturn. However, this slump is being viewed as a potential buying opportunity by Jay Woods, Chief Market Strategist at Freedom Capital Markets.
Despite record profits and huge backlogs reported by key players, the market has largely ignored recent positive news. For instance, Samsung recorded record third-quarter profits, yet this did not translate into a stock rally. This disconnect between company performance and market reaction suggests a potential mispricing of memory stocks.
The DRAM sector, particularly, is under the spotlight. While the ETF for this segment has limited historical data since its launch on April 2nd, its initial surge of up to 211% has since seen a pullback. This retreat is now forming an interesting baseline, with current prices hovering around key technical indicators.
Woods emphasizes the use of Anchored Volume-Weighted Average Price (AVWAP) levels, derived from the initial pricing, all-time highs, and recent lows, as crucial guides. The fact that prices are consolidating around the AVWAP from inception, its all-time high, and the 50-day moving average is considered a bullish sign, indicating strong support.
The strategy proposed is to accumulate or initiate positions at these support levels. A stop-loss around $53, based on the AVWAP from recent lows, is recommended to mitigate potential downside risk. Upside targets are set at $63, with a further break above this level potentially leading shares back into the $70s.
Beyond the ETF, Woods also highlights individual components within the sector that offer solid risk/reward profiles. Micron (MU) is singled out as one of the best-performing stocks in the S&P 500 this year, with a year-to-date gain of over 270%. Although Micron has traded sideways since May, its underlying strength makes it an attractive prospect.
Woods concludes that the current malaise in memory stocks, despite strong fundamentals and technological advancements driving demand, presents a compelling opportunity for investors to enter or expand positions.
