economy
Why the market's biggest winners look so cheap
Their low price-to-earnings multiples reflect the market's worries that the current boom times won't last.
TL;DR
- Memory-related stocks have been the market's biggest winners this year, yet they appear undervalued with low price-to-earnings (P/E) multiples.
- This low valuation stems from market concerns that the current surge in demand and earnings is unsustainable, a typical characteristic of the cyclical memory chip industry.
- However, some analysts believe the advent of AI represents a new, sustained source of demand, arguing that memory shares should be valued more like other tech companies.
- SK Hynix, a leading memory chipmaker, saw its stock soar over 500% in the past year, but its P/E multiple remains low at seven times.
- U.S. leaders like SanDisk and Micron Technology also have P/E ratios in the lowest 20% of the S&P 500, despite significant gains.
- Analysts like Mark Newman suggest current multiples price in an imminent profit collapse, while Gil Luria emphasizes that AI's reliance on memory is transforming the business and that supply may be insufficient.