Demand for memory chips has skyrocketed over the past year as big tech companies upped their spending on artificial intelligence (AI) data centers. That’s been a huge boon for both Micron Technology (MU 6.58%) and Sandisk (SNDK +1.97%), which have benefited from tremendous pricing power. Earnings at both companies have soared, as have their stock prices. Micron shares are up over 700% in the past 12 months, and Sandisk stock is up a whopping 3,200%.
But investors eager to hop on the bandwagon need to be aware of two other companies that have a huge influence on both Micron’s and Sandisk’s earnings. Since they’re foreign companies, their stocks are generally less accessible to American investors. But luckily, there’s a way for investors to gain access to them and hedge the risk they pose to American memory leaders.
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The foreign memory giants controlling the market
Micron and Sandisk currently benefit from a global supply shortage in memory chips. For the most part, memory chips are very commodity-like. That is, a memory chip from one company can serve just as well as one from another manufacturer. As such, every memory chipmaker can have an outsize impact on the entire industry by rapidly increasing its production capabilities.
So far, all of the memory chipmakers have exercised caution in expanding their production. Nobody wants to get caught with expensive production facilities without the demand to utilize them. At the same time, none of them wants to leave the opportunity to sell more chips on the table. It’s a careful balancing act, and one that creates tremendous boom-and-bust earnings cycles throughout the industry.
Today’s Change
(-6.58%) $-51.02
Current Price
$724.99
Key Data Points
Market Cap
$817B
Day’s Range
$719.00 – $749.49
52wk Range
$90.93 – $818.67
Volume
1.7M
Avg Vol
44M
Gross Margin
58.54%
Dividend Yield
0.07%
It’s also why investors can’t ignore the influence of Korean chipmakers Samsung Electronics (SSNLF +0.00%) and SK Hynix (KOSE: A000660). The two combined to account for more than two-thirds of the global DRAM chip market and nearly one-half the NAND chip market. They also dominate the valuable high-bandwidth memory (HBM) chip market, with about 80% of sales. HBM chips are stacks of DRAM chips that are designed specifically to attach to GPUs and other AI accelerator chips for AI training and inference.
As such, the two companies exhibit a tremendous influence over the entire market. If they build out capacity faster than the competition, they could benefit from more chip sales, but they could push prices lower across the entire industry. Those without capacity will be left behind.
Samsung made a big step up in investments last year, building a new clean room space at one of its existing facilities to support memory chip production. It’s also investing in new construction on the same site. Management expects to significantly ramp up equipment spending throughout the year to increase production capacity. It’s also accelerating its construction of a new site by roughly six months compared to earlier plans, but that site won’t start meaningful production until 2028. It’s worth noting Samsung currently faces the threat of a strike from its workers, which could severely impact its chip production in the near term.
Today’s Change
(1.97%) $27.28
Current Price
$1410.00
Key Data Points
Market Cap
$208B
Day’s Range
$1315.66 – $1426.17
52wk Range
$35.79 – $1600.00
Volume
427K
Avg Vol
18M
Gross Margin
56.04%
SK Hynix is following a similar course, upgrading and expanding existing facilities to squeeze as much production out of existing spaces. It’s also advancing construction on four new facilities in a joint project with Samsung, with the first of its facilities expected to start production next year.
The global production build-out led by the two Korean companies could start negatively impacting pricing by 2028. If Sandisk and Micron aren’t positioned to make up for lower pricing with volume, their earnings could come down faster than the competition’s.
How to invest in the other memory chip stocks
Some brokers may allow their investors to buy shares on the Korean stock exchange, but most Americans might find it difficult to gain direct access to SK Hynix. Samsung shares trade over the counter, but not all brokers will support those trades either. The easiest way for investors in the United States to gain access to Samsung and SK Hynix is through an exchange-traded fund (ETF).
The iShares South Korea ETF (EWY 6.12%) tracks the entire South Korean market. The two chip giants currently account for over 50% of its value, so it presents a relatively good proxy for investing in the two chip stocks. Investors will have to pay a relatively high expense ratio of 0.59%.
iShares – iShares Msci South Korea ETF
Today’s Change
(-6.12%) $-11.66
Current Price
$178.86
Key Data Points
Day’s Range
$176.70 – $181.34
52wk Range
$58.19 – $194.58
Volume
22M
A new ETF launched by Roundhill offers investors a way to invest in the entire memory industry. The Roundhill Memory ETF (DRAM 5.00%) holds just under half of its portfolio in SK Hynix and Samsung. Micron accounts for about a quarter of the portfolio, and Sandisk adds another 5%. With exposure to the American companies as well as the Korean leaders, the ETF doesn’t present as much of a hedge as it does an investment in the continued growth of the entire industry. It’s also a bit more expensive with an expense ratio of 0.65%.
While Micron and Sandisk have seen incredible gains over the past year, investors should consider how the Korean companies could impact their future earnings and whether they should diversify to the competition (which have produced tremendous returns in their own right).
