Melius Research: The AI boom will drive storage demand growth to the end of the decade, first giving Micron (MU.US) and SanDisk (SNDK.US) a "buy" rating.

Wall Street research firm Melius Research believes that the artificial intelligence boom will continue to drive storage demand growth until the end of this decade, and that the stock prices of the storage chip giants Micron (MU.US) and SanDisk (SNDK.US) still have further upside potential. Melius initiated coverage of Micron and SanDisk on Monday, giving both companies a "buy" rating and setting two-year price targets of $700 and $1350, respectively. The firm pointed out that storage, driven by AI, is becoming a core component of the entire artificial intelligence investment logic. Boosted by this positive outlook, Micron rose 5.6% on Monday to close at $524.56, up 558% in the past 12 months; meanwhile, SanDisk rose 8.1% to $1070.20, a 3158% increase over the past year. The companies are set to report earnings after the market closes on Thursday. Melius analyst Ben Reitzes stated that the market should recognize that storage has become an important part of the AI investment logic, closely linked with AI semiconductors, AI hardware, and major cloud service providers. Despite the impressive stock price increases, Melius believes that the market is still undervaluing storage stocks. Currently, the forward price-to-earnings ratios for Micron and SanDisk for the next 12 months are approximately 6.4 times and 10.3 times, significantly lower than the average of around 25 times for the Philadelphia Semiconductor Index. If more customers sign multi-year supply agreements, there is still room for valuation improvement. The firm believes that storage has become "mission-critical" for customers. As AI models increasingly rely on higher memory capacity and the rise of AI complexes drive higher storage demands at all levels of computing, storage needs are growing exponentially. Reitzes pointed out that if the AI trend continues, the upward trend in storage prices may continue as the supply-demand relationship undergoes structural changes. Melius believes that, unlike the last downturn in the storage industry in the early 21st century, when demand fell and inventory piled up, the current demand is supported by AI cloud computing spending, and sales models are shifting from spot purchases to long-term supply contracts, weakening the cyclical nature of the industry. This logic is widely supported on Wall Street. FactSet data shows that over three-quarters of analysts have a "buy" rating on SanDisk, and 92% of analysts are bullish on Micron. Meanwhile, Morgan Stanley analyst Joseph Moore has further raised SanDisk's price target from $690 to $1100 and maintained an "overweight" rating. He stated that the momentum in NAND storage pricing in SanDisk's core business is expected to continue, with demand from major cloud service providers squeezing out other buyers, which will continue to support price increases. Morgan Stanley expects SanDisk to deliver strong earnings and optimistic guidance on Thursday. However, the firm also warns that, despite strong performance, the stock price may not immediately rise further, as SanDisk has already risen by 68% in April.