AI storage chips: have they peaked, or is it time to buy the dip?
- Core View: The storage chip sector is facing a pattern of "expected peak" but "fundamental peak not yet confirmed," with stock prices hovering at high levels amid unclear direction. SanDisk and Western Digital beat earnings expectations but saw their stock prices fall, as the market is pricing in ahead of time that AI storage margin growth is approaching its peak—the timing for a full-scale bottom-fishing has not yet arrived.
- Key Factors:
- SanDisk's Q4 revenue surged 372% year-over-year to $8.965 billion, with gross margin at 84.6%, and it announced a $14 billion buyback plan. However, its guidance fell short of the market's "better-than-expected" hopes, triggering a sell-off driven by expectation disappointment.
- Western Digital's fiscal Q4 net profit soared more than 12 times year-over-year, with adjusted EPS of $3.56, beating expectations across the board, yet its stock price also declined. This shows that capital attention has shifted to the slope of future growth rather than current profits.
- The first early warning signal of a peak is that valuations have begun trading at peak levels, while the fundamental top has not yet been confirmed by earnings. Going forward, three signals need to be monitored: slowing storage price increases, declining gross margins, and downward revisions in cloud vendor orders.
- Referencing the Nvidia case: after gross margin peaked at 78% from 43%, the stock entered a year-long consolidation. Storage sector gross margins have already risen from 50% to 80%, making it less likely to replicate the previous tenfold-plus gains.
- Current trading strategy should be phased: when the expected peak has arrived, one can participate with limited capital for tactical trades; only after gross margins decline and valuations clear out should one consider scaling up positions for a recovery play.
Is the storage chip sector finally at its bottom, or has it peaked?
Currently, both views exist in the market, and each seems to make a compelling case. After the recent pullback, key storage stocks like SK Hynix, SanDisk, Micron, and Western Digital are stuck in an awkward position — with significant room to move in either direction.
However, the latest earnings reports from SanDisk and Western Digital released a couple of days ago may provide the answer to this very question.
1. Blockbuster Earnings, Yet the Stock Price Crashed: This Time, Expectations Were the Target
First, let's look at just how impressive the earnings themselves were.
On August 5th after market close, SanDisk reported Q4 results: revenue of $8.965 billion, a 372% surge year-over-year, gross margin of 84.6%, EPS crushing market expectations, and they also threw in a $14 billion buyback plan. Western Digital performed equally well: fourth-quarter net profit surged more than 12 times year-over-year, with adjusted EPS of $3.56, comprehensively beating market expectations.
Yet, following these stellar results, both companies' stock prices quickly declined, once again dragging down the entire storage chip sector.
So where's the problem? A closer look at the earnings reports reveals that while the revenue figures are impressive, the forward guidance disappointed the market. In short, the trigger for the decline was that results weren't "even better."
This is a classic case of expectations being crushed. The market is no longer focused on whether profits are growing — it's focused on whether profits can continue to massively beat expectations. Capital is already pricing in one thing ahead of time: the pace of AI storage margin expansion is approaching its peak.
2. The First Potential Warning Signal of a Peak Has Already Emerged
This, in fact, may be the first warning signal that storage chips are peaking: revenue hasn't peaked yet, but expectations reflected across various earnings reports have essentially topped out.
Notice the subtlety of this signal — earnings peaking hasn't been confirmed by the financial reports, but valuations are already pricing in peak levels ahead of time. The market never waits for you to present hard evidence; it trades on changes in the trajectory.
After the first signal, there are several more warning signals worth watching closely: when storage price increases begin to slow, when gross margins start to decline, and when cloud vendors' orders start to be revised downward. The realization of any one of these three signals would mean that the fundamental peak is beginning to be validated by data.
3. Is It Time to Buy the Dip? First, Consider Nvidia's Historical Path
Since expectations have peaked, does that mean it's time to do the opposite and buy the dip?
If your idea of buying the dip is going all-in, now is clearly not the time. The reason is simple: the valuation peak signal has appeared, but the fundamental peak signal has not. And for those wanting to go all-in, it's worth learning from history — look at the growth curve of AI's veteran leader, Nvidia.
After the AI large model explosion, GPU computing power experienced a structural supply-demand imbalance, and Nvidia's stock price surged over 10-fold in just over a year. During this process, its gross margin climbed from 43% all the way to 78% in April 2024, before peaking. For the following year, Nvidia's stock traded sideways — although gross margin recovered somewhat later, it never broke to new highs, hovering around 75%. During this period, the upward slope of Nvidia's stock price visibly flattened, only slightly outperforming the broader market.
Storage stocks are now facing an almost identical situation. Over the past year, the storage sector's gross margin has climbed from 50% to 80%. With fundamental improvements combined with capital market speculation, stock prices have multiplied tenfold or even tens of times under multiple tailwinds. Expecting another round of such gains to replicate is simply unrealistic.
What is the real signal to position for? It's waiting until gross margins decline, expectations are crushed back to rock bottom, and valuations are sold off once again. That's when you can talk about buying the dip.
4. Final Thoughts: How to Trade the Awkward Position Before Signals Materialize?
Let's summarize the conclusions: the expectations peak has appeared, the fundamental peak has not yet arrived, and the moment for going all-in has not come. This means storage stocks are likely to remain in a "stuck in the middle" range, repeatedly seesawing in both directions — every earnings report, every piece of pricing data, every cloud vendor order could trigger a surge or a crash, with direction impossible to confirm until signals materialize.
This kind of market is the most torturous: staying in cash risks missing the rebound, holding a heavy position risks deep drawdowns, and going all-in is betting your principal on a signal that hasn't even appeared yet.
Facing this "unclear direction, extreme volatility" situation, BIT Exchange's option buying feature is exactly the right remedy: whether betting on another dip after earnings or playing for an oversold bounce, you can participate with a small cost, with maximum loss locked in at the premium the moment you place the order — before signals are confirmed, use limited cost to gain participation rights, rather than betting your full principal on direction.
The margin trading feature, on the other hand, is designed for "after signals materialize": when gross margins decline and the true bottom signal appears, you won't be constrained by principal size and can quickly amplify your position to capture the recovery trade, fully leveraging the certainty you've waited for. When market signals remain unclear, investors should fully assess risks and carefully decide whether to participate and which trading tools to use, based on their own investment objectives, risk tolerance, and trading experience.
Disclaimer: This content was written by an external author and represents only the personal views of the author. It does not reflect the position of BIT and does not constitute any investment, legal, tax, or other professional advice. The securities, industry, and market analyses mentioned herein are for informational purposes only and do not constitute investment advice or a guarantee of future performance. Financial markets involve risks. Investors should invest cautiously, make independent judgments based on their own circumstances, and bear their own investment risks.
