Memory stocks have tanked, but BofA says the sharp sell-off is overdone
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- Memory stocks have sold off, with the latest dip coming after an announcement from Google this week.
- Bank of America said the sell-off is overdone and that robust AI capex is a bullish indicator.
- The analysts flagged Micron stock, which is trading at the low end of its historic valuation.
Memory stocks have had a rough week with several names, like Micron, seeing double-digit declines. Yet, Bank of America analysts told clients that the sell-off is overdone.
Google announced advancements in compression technology that make AI computing more efficient and lower the demand for memory chips. The announcement sent memory stocks, including Micron, Sandisk, Western Digital, and Seagate Technology, tumbling.
Bank of America analysts reminded clients in a Friday note that their view is that "AI capex remains the ultimate proof point of AI spend/demand, not efficiency measures."
Google's new tech, TurboQuant, reduces the memory required to run AI inference by up to six times without sacrificing accuracy," they explained.
The fear driving the sell-off in memory stocks is that the more efficient tech eliminates the AI-driven memory shortage that drove the group's dramatic gains earlier in the year.
The memory stock sell-off weighed on the broader chip space and the tech sector as a whole, with the Nasdaq Composite falling into correction territory on Friday.
Why BofA isn't spooked
Bank of America pointed out that compression tech isn't new, with Nvidia announcing similar updates in the past year. They said that the underlying tech of Google's TurboQuant has already been in focus within the space.
The analysts compared the memory stock sell-off to the DeepSeek panic of 2025, when investors' ultimately unfounded fears trumped fundamentals and drove dramatic losses that were ultimately short-lived.
AI spending is expected to surpass $1 trillion by 2030, according to Bank of America projections, based on what they describe as "conservative" capex intensity.
The analysts say that the money pouring into AI is a better indicator of what's to come for memory stocks, and it's flashing bullish signals.
The bank holds memory among its top chip subsectors, behind AI computing, semiconductor capital equipment, and AI networking plays.
They flagged Micron specifically, saying that while margin concerns persist, the stock is trading on the low-end of its historical valuation.
Bank of America's price target for Micron stock implies a more than 35% upside from current price levels.