Have AI storage chips now reached their peak? Or is it time to buy at the bottom?

Is the storage chip sector at a bottom or a peak now?

Currently, there are two voices in the market, and both seem to make sense. Key storage stocks like SK Hynix, SanDisk, Micron, and Western Digital have experienced a pullback, and their stock prices are stuck in an awkward position—whether up or down, there seems to be significant room for movement.

The latest financial reports released by SanDisk and Western Digital a couple of days ago might just provide an answer to this question.

1. Explosive Financial Reports, Yet Stock Prices Plummet: This Time It's About "Expectations"

First, let's look at how impressive the financial reports are.

After the market closed on August 5, SanDisk announced its Q4 performance: revenue of $8.965 billion, a staggering year-on-year increase of 372%, a gross margin of 84.6%, and EPS that crushed market expectations, along with a $14 billion buyback plan. Western Digital also performed excellently: its net profit in the fourth fiscal quarter surged over 12 times year-on-year, with adjusted EPS reaching $3.56, far exceeding market expectations.

However, after such outstanding results were announced, the stock prices of both companies quickly fell, dragging down the entire storage chip sector once again.

Where did the problem lie? A closer look at the financial reports reveals that while the revenue figures are impressive, the guidance disappointed the market. In short, the trigger for the decline was the lack of "better" expectations.

This is a classic case of killing expectations. The market is no longer focused on whether profits are growing, but rather on whether profits can continue to significantly exceed expectations. Funds are preemptively trading on one thing: the rising speed of AI storage profit margins is approaching its peak.

2. The First Possible Peak Warning Signal Has Emerged

And this may very well be the first warning signal of a peak in the storage chip sector: revenue has not yet peaked, but the expectations reflected in various financial reports have basically reached their peak.

Note the subtlety of this signal—profit peaks have not yet been confirmed by financial reports, but valuations have already begun to trade at peak levels. The market never waits for you to provide solid evidence; it trades on changes in slope.

After the first signal appears, there are several other warning signals worth monitoring: when will the increase in storage prices begin to slow down, when will gross margins start to decline, and when will cloud vendor orders begin to be revised downwards? Any one of these signals materializing would mean that the fundamentals have begun to be validated by data.

3. Can We Bottom Fish Now? Let's Look at NVIDIA's Past Journey

Since expectations have peaked, does that mean we can reverse and bottom fish?

If your idea of bottom fishing is to go all-in, it is clearly not the right time yet. The reason is simple: the peak signal for valuations has appeared, but the peak signal for fundamentals has not yet emerged. If you want to go all-in to bottom fish, it might be wise to learn from history and look at the growth curve of AI leader NVIDIA in previous years.

After the explosion of AI large models, there was a structural supply-demand imbalance in GPU computing power, and NVIDIA's stock price increased more than tenfold over a year. During this process, its gross margin skyrocketed from 43% to 78% by April 2024, then peaked. After that, NVIDIA's stock price consolidated for a year—although the gross margin recovered somewhat later, it never broke new highs and hovered around 75%. During this period, the slope of NVIDIA's stock price increase clearly slowed down, only slightly outperforming the market.

The storage stocks currently face a nearly identical situation. Over the past year, the gross margin of the storage sector has risen from 50% to 80%, with fundamental improvements combined with capital market speculation leading to stock prices multiplying several times or even dozens of times. It is unrealistic to expect another round of such increases in the future.

What is the real signal for positioning? It is to wait until gross margins decline, expectations are reset to the bottom, and valuations are sold off again. Only then can we talk about bottom fishing.

4. In Conclusion: How to Trade in an Awkward Position Before Signals Materialize?

To summarize the conclusions: the peak of expectations has been seen, the peak of fundamentals has not yet arrived, and the all-in moment is not here. This means that storage stocks are likely to oscillate repeatedly in a "stuck" range—every financial report, every price data point, and every cloud vendor order could trigger a surge or a plunge, while the direction cannot be confirmed until signals materialize.

This kind of market is the most torturous: being out of the market fears missing a rebound, being heavily invested fears deep losses, and going all-in is just betting on a signal that has not yet appeared.

In the face of this "uncertain direction and high volatility" situation, BIT Brokerage's newly launched options buying feature is just the right remedy:

• Whether betting on a further drop after the financial report or speculating on a rebound from overselling, you can participate with a small cost, with the maximum loss locked in at the moment of placing the order—before the signal is confirmed, use limited costs to gain participation rights, rather than betting the entire capital on direction.

The margin trading feature is prepared for "after the signal materializes": when gross margins decline and real bottom signals appear, you won't be stuck by the scale of your capital and can quickly enlarge your position to capture the recovery market, making full use of the certainty gained from waiting. In times when market signals are still unclear, investors should fully assess risks and carefully choose whether to participate and what trading tools to use, based on their investment goals, risk tolerance, and trading experience.

Disclaimer: The content of this article is written by external authors and represents the personal views of the authors, not the position of BIT, and does not constitute any investment, legal, tax, or other professional advice. The securities, industries, and market analyses mentioned in the article are for informational sharing only and do not constitute any investment advice or guarantee of future performance. Financial markets carry risks; investments should be made cautiously, and investors should independently assess their situations and bear investment risks.