With the low VIX volatility backdrop in U.S. equities, memory chips appear to be the only sector still showing strength

Since the start of August, the VIX, Wall Street's "fear gauge," has been trending lower, gradually retreating from around 20 to 15, and even touched 14.2 during intraday trading yesterday. Against this backdrop of bottoming volatility, the S&P 500 is up about 16% year-to-date, stock funds have seen 12 consecutive weeks of net inflows, and US stocks have risen for three straight weeks, repeatedly hitting record highs.

Everything appears calm and serene. But it is precisely at moments like this that some Wall Street institutions' alarm bells begin to ring.

1. What Kind of Alarm Has VIX Triggered?

Wall Street institutions generally view the period from mid-August to mid-October as a historically turbulent stretch for markets.

Investment firm BTIG's statistical model even provides specific figures: in every midterm election year since 1990, the equal-weighted S&P 500 has experienced at least a 7% drawdown from its average high on August 18 to mid-October—without exception.

The implication of this pattern is straightforward: we are entering the worst stretch on the midterm election calendar, so don't get too comfortable. Especially when volatility is compressed to such low levels, the market is likely underestimating how vulnerable this rally is to sudden negative shocks. The flatter the spring is pressed, the harder it bounces.

2. Amid the Calm, Memory Stocks Reclaim the Spotlight

Interestingly, just as VIX lay flat last night, the memory chip sector rallied broadly once again, reclaiming market attention: SK Hynix closed up about 3%, SanDisk gained nearly 9%, and Micron rose more than 4%.

In a low-volatility market, capital seems to have reached a tacit understanding—memory is currently the only sector with a realistic prospect of continuing to strengthen.

3. Three Cards in the Memory Bulls' Hand

Why can memory stocks still rally? Breaking it down, the logic has three layers.

First, price increases haven't just continued—they're accelerating. Guidance from US investment bank KeyBanc shows DRAM prices rising 15% to 20% in Q3 and another 15% in Q4; NAND is set to surge 30% to 40% in Q3 alone. Note that this is not a short-term pulse caused by downstream manufacturers stocking up on inventory in a centralized manner, but rather structural shortages: HBM and advanced DRAM are eating up a large portion of manufacturers' capacity, squeezing out production lines for mainstream DRAM and NAND, leaving supply passively constrained.

Second, the supply side is remarkably restrained. Memory manufacturers are holding large portfolios of long-term agreements—essentially locking in procurement volumes and prices with customers one to two years in advance in black and white—with Micron having the highest coverage. With long-term contracts in hand, no one has the incentive to suddenly expand capacity or cut prices to steal business. Bank of America has even declared that AI has permanently rewritten Micron's cyclical stock characteristics, projecting EPS of $236 by 2030 with gross margins maintained at around 80%.

Third, the long-term thesis is backed by the companies themselves. SanDisk recently committed at its Investor Day to revenue growth in the mid-to-high single digits up to 15% for fiscal years 2028 to 2030; it also unveiled the ninth-generation 2Tb QLC flash memory jointly with Japan's Kioxia—QLC being a storage technology that packs more data into the same footprint, offering lower cost and higher capacity, targeting AI data center warehouses. This is tantamount to a public declaration: it's coming for hard disk drives' (HDD) turf in data centers.

4. Where Are the Risks Hiding?

The bullish logic is coherent, but the risks cannot be ignored either.

First: Chinese supply. ChangXin Memory Technologies (CXMT) once held the title of China's most valuable company, and major PC makers like HP, Acer, and ASUS have begun small-batch adoption of its products; YMTC's NAND shipments have broken into the global top three. Chinese manufacturers can't crack the high-end market yet, but their playbook can start with low-end models and grind prices upward layer by layer—this is the Sword of Damocles hanging over every memory manufacturer.

Second: the psychological trap of cyclical stocks—when prices are rising, nobody believes they can fall. Micron once saw its stock pull back 23% from highs without any new earnings report; Kioxia was even more brutal, falling 48% before rebounding. The market itself is currently debating: is this latest surge the final push before a top, or a mid-way consolidation? No one can provide an answer in advance.

Third: all of the demand eggs are in the AI basket. The nine major tech companies' "off-balance-sheet AI commitments"—AI procurement and investment pledges signed outside balance sheets that haven't yet translated into actual spending—approach $3 trillion. The demand looks enormous, but once the giants enter a "digestion phase," meaning pausing new orders and putting existing computing capacity to work first, memory demand would be the first to hit a gap. Even more concerning, investment bank Bernstein has raised its WFE spending outlook for the next two years by 75%—WFE refers to wafer fab equipment spending, essentially the money memory makers use to buy machinery and build new production lines. A surge in equipment orders is like planting the seeds of the next capacity glut—right now.

5. Final Thoughts: The Medium-Term Trend Remains, but the Blind-Buy Era Is Over

Laying out both the bull and bear cases, the conclusion is actually quite clear: in the medium term, the memory sector is likely to sustain its bullish trend, with the price rally expected to last at least through 2027. But it must also be said clearly—at current levels, this is no longer a stage where you can buy blindly and still profit.

For ordinary investors, the following signals need to be monitored closely:

First, the month-over-month slope of NAND contract prices—essentially how much contract prices rise each month versus the previous one. If the pace of increases slows or flattens, it signals the shortage narrative is weakening. Second, manufacturers' long-term contract coverage ratio—if the percentage of long-term coverage starts declining, it suggests the companies themselves are less certain about the future. Third, the pace of Chinese memory's high-end market entry—once CXMT and peers knock on the door of the high-end segment, the pricing system will be reshuffled.

Among these three signals, whichever turns first will represent the top of the current cycle.

[Important Notice] This article is written and provided by an external contributing author. The market data, institutional forecasts, and historical statistical patterns described herein are for reference only and do not constitute investment advice, an offer, a solicitation of an offer, or a recommendation to buy or sell any securities. The views, analysis, and judgments expressed represent the personal opinions of the author and do not represent the official position of BIT or BIT Research. BIT makes no warranties regarding the accuracy, completeness, or timeliness of the relevant content. The views of third-party institutions cited herein (including KeyBanc, Bank of America, Bernstein, BTIG, etc.) represent only their own or their analysts' personal opinions, do not represent BIT's position, and are not guaranteed for accuracy. Historical patterns and past performance do not guarantee future results, and long-term earnings forecasts carry significant uncertainty. Investing involves the risk of loss of principal, and the memory chip industry in particular has strong cyclicality, with market prices subject to significant fluctuations. Investors should make their own decisions based on their financial situation and risk tolerance, and consult independent professional advisors.