Selloff of U.S. memory stocks creates a compelling entry point: analyst

Investing.com -- Morgan Stanley told investors in a note Monday that it believes the recent selloff in U.S. memory stocks presents a buying opportunity, arguing that data center memory shortages continue to intensify even as mixed signals emerge elsewhere in the market.

Analyst Joseph Moore described the current memory cycle as unusual, noting that "data center strength is the only cause" behind it, which means mixed signals in other areas "may be a false flag."

Moore said memory isn't the best risk-reward in its coverage, which it views as Nvidia and Broadcom, "but it's catching up fast."

He added that recent concerns around second-derivative deceleration, higher capex and de-speccing "were predictable a month ago," but argued this is not a normal cycle, as memory has become "increasingly THE bottleneck" to AI builds and agentic CPU builds.

Morgan Stanley said shortages continue to intensify, with data center memory prices up more than 25% in the third quarter.

While that represents some deceleration from second-quarter increases, Morgan Stanley called this “obvious" and said long-term agreements and de-speccing could flatten the amplitude of the cycle versus inflated expectations, while increasing its duration, "which is likely better for stocks in the long run."

Morgan Stanley noted that conversations with data center purchasing contacts last week showed shortage intensity "show no signs of abating," with prices up at least 25% quarter-over-quarter, above both Morgan Stanley's and third-party estimates.

The firm added that longer-term concerns about memory shortages intensifying in 2027 and 2028 "are still as strong as ever."

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