Memory stocks are pressing their summer highs. Where the charts show them going
Between hot inflation prints, a Federal Reserve that’s suddenly back in play for a hike, and headlines of continued conflict in the Middle East, the market’s attention has been almost entirely on the macro side since June. The money that moved went into energy and the value-oriented corners of the market, and that rotation story has been well told. There’s been relatively little coverage of technology and as a result. The XLK ETF has been consolidating into a pattern that doesn’t suggest a top is forming, but rather a bullish consolidation that tells us to expect a breakout and potential market leadership once again. XLK has been carving a tightening range since the early July high and is now pressed right up against the downtrend line off those highs, around $190.The 50-day moving average at $182.74 has flattened and turned up underneath price, which is the sequence you want before a range resolves with a topside breakout. Further validating this analysis is the XLK/S & P 500 relative ratio in the lower panel has stopped making lower highs and starting to turn high suggesting we may see tech leadership into year-end. There’s been a lot of talk this summer about the great software comeback, and IGV has certainly outperformed.However, if you chart IGV relative to the semiconductor holders SMH , you’ll see the ratio has formed a symmetrical 34% pullback, which is almost exactly the same price distance of the June ’24 – May ’25 pullback. These kinds of price symmetry pullbacks happen more than you think and can often help identify an area of completion with a correction.The ratio is starting to bounce off that 34% symmetrical pullback against suggesting that memory and hardware may be ready to once again step into a leadership role.If you noticed this current 34% pullback happened in roughly one-half the time compared to the last one, you’re correct. I think the quicker duration of this summer washout further validates the outlook that it’s simply a correction to the longer-term trend. The leadership within the semiconductor industry is the memory space.The DRAM ETF that we’ve covered in this weekly column multiple times is pressing the top of its summer trading above $62, and both the DRAM/SPX and DRAM/SMH ratios have turned higher. That second one is the tell with memory showing relative strength against semiconductors themselves, which is usually where you find the group actually pulling the sector. Sandisk is the standout leader in the group. The stock has been caught in a range since mid-July working to breakout through around ~$1,900.I don’t yet hold SNDK in the TAG (Tactical Alpha Growth) model at Inside Edge, but do hold a 2% allocation DRAM as I’ve disclosed in this column before.I intend to start working into a SNDK position ahead of the breakout from resistance. Confirming this outlook are the two panels below price with the next 12 months earnings per share at $214.10 after a steady climb. Looking below, when you divide that EPS into the SNDK price of $1,783.51 you see a very cheap next twelve month PE ratio of 8.3x. The forward multiple has stopped compressing as the memory stocks have been considered a cyclical commodity with the demand likely to be satisfied once the initial buildout is complete and then the stock price should rollover. If investors begin treating memory as a durable and structural growth component of the AI buildout that will be over-supplied in the near future, the multiple is where the shift shows up first. And what you see is the forward multiple made a higher-low similar to last Feb, March, and April, which set up the massive rally from $500-$1500. The sell side is arriving at the same conclusion from the fundamental side. Susquehanna’s recent report have DRAM and NAND contract pricing running well ahead of prior expectations, and UBS lifted its 2027 blended HBM (high bandwidth memory) price growth forecast to roughly 79% year over year from 67%, with Micron’s leading-edge capacity reportedly sold out through end of this year. I’m watching Memory company’s management teams present at Citi’s Global TIM today and Goldman Sachs event tomorrow to see whether our view that memory’s earnings power is becoming structural rather than cyclical -Todd Gordon, Founder of Inside Edge Capital, LLC DISCLOSURES: Gordon owns DRAM personally and for clients of his wealth management company Inside Edge Capital, LLC. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. 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