Shares of SanDisk Corp (NASDAQ:SNDK) declined 2.7%, while Seagate Technology PLC (NASDAQ:STX) and Micron Technology (NASDAQ:MU) fell 1.8% each during the pre-market trading session on Tuesday, extending the previous session’s losses.
The drop came as Seagate CEO Dave Mosley expressed concerns about the company’s capacity to meet the escalating demand for memory chips on Monday, a trend fueled by the expansion of artificial intelligence (AI). This led to a decline in leading memory stocks.
During a JPMorgan conference, Mosley discussed the challenges of increasing production capacity at Seagate’s factories, CNBC reported.
“If we took the teams off and started building new factories or bringing up new machines, that would just take too long. You would end up with more capacity, but then you’d slow the rate of growth on that technology,” he said.
Mosley also highlighted the issue of “very long lead times” and the need to maintain predictability with its clients. He said the company has already informed customers about products planned for release next year, allowing them to prepare and purchase equipment for their data centers in advance.
Despite these efforts, Mosley said that the demand for memory chips far exceeds what Seagate can currently supply.
“We want to keep that four or five quarters of visibility very, very solid for what’s being built. But the demand is significantly higher than that,” he said.
AI Rush Tightens Chip Supply
The AI boom is putting immense pressure on the semiconductor market, with major tech companies reportedly offering financial backing to SK Hynix to secure a critical memory chip supply. The situation is so dire that available production capacity is described as “essentially zero.” Such deals are seen as unusual for the memory chip industry, where customers typically buy components instead of financing manufacturing growth.
However, Melius Research analyst Ben Reitzes predicts a continued rally in chip stocks due to strong AI-driven demand and sustained spending. Companies like Micron, SanDisk and Intel Corp. (NASDAQ:INTC) are signing long-term agreements to increase predictability and capture more market value. Reitzes said that his firm raised price targets on MU, SanDisk and INTC, noting that long-term agreements are making semiconductor companies’ revenue streams more predictable.
Benzinga’s Edge Rankings place Seagate in the 99th percentile for momentum and the 19th percentile for growth, reflecting its mixed performance. Benzinga’s screener allows you to compare STX’s performance with its peers.
STX Price Action: On a year-to-date basis, Seagate stock surged 157.65%, as per Benzinga Pro. On Monday, it declined 6.87% to close at $740.
Image via Shutterstock
Recent Comments