Against the backdrop of low volatility in the US stock market VIX, storage chips seem to be the only sector that can still strengthen

Source: BIT Securities

Since entering August, the "fear index" VIX of the U.S. stock market has been declining steadily, falling from around 20 to 15, and even dipping to 14.2 during yesterday's trading session. Against the backdrop of low volatility, the S&P 500 has accumulated an increase of about 16% this year, with stock funds experiencing net inflows for 12 consecutive weeks, and the U.S. stock market has risen for three weeks in a row, repeatedly hitting historical highs.

Everything seems calm and peaceful. But it is precisely at such moments that some Wall Street institutions have started sounding alarms.

1. What alarms has VIX triggered?

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

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

The implication of this pattern is straightforward: we are entering the worst period of the midterm election year calendar, so don’t get too comfortable. Especially with volatility at extremely low levels, the market may be underestimating the fragility of this rebound in the face of sudden negative news. The flatter the spring is pressed, the more violently it will bounce back.

2. Amidst the tranquility, storage stocks reclaim the spotlight

Interestingly, on the night when VIX was flat, the storage chip sector saw a broad rally, reclaiming market attention: SK Hynix rose about 3%, SanDisk rose nearly 9%, and Micron rose over 4%.

In a low-volatility market, funds seem to have reached a consensus—storage is currently the only sector likely to continue strengthening.

3. The three cards in the hands of storage bulls

Why can storage still rise? Breaking it down, there are three layers of logic.

First, price increases have not only not stopped but are accelerating. U.S. investment bank KeyBanc's guidance indicates that DRAM prices will rise by 15% to 20% in the third quarter and another 15% in the fourth quarter; NAND prices will directly increase by 30% to 40% in the third quarter. Note that this is not a short-term pulse caused by downstream manufacturers concentrating on restocking, but rather a structural shortage: HBM and advanced DRAM have consumed a large amount of original factory capacity, squeezing out ordinary DRAM and NAND production lines, which can only passively face shortages.

Second, the supply side is surprisingly restrained. Storage manufacturers hold a large number of long-term contracts, simply put, they have locked in future purchase volumes and prices with customers for the next year or two in black and white, with Micron having the highest coverage. With long-term contracts in hand, no one has the motivation to suddenly expand production or cut prices to grab business. Bank of America even stated: AI has permanently rewritten Micron's cyclical stock attributes, projecting EPS to reach $236 by 2030, with gross margins maintaining around 80%.

Third, the long-term logic is backed by the companies themselves. SanDisk recently promised at an investor day that revenue growth for FY2028 to FY2030 would maintain mid-to-high single digits to 15%; they also jointly released the ninth generation 2Tb QLC flash memory with Kioxia—QLC is a storage technology that can pack more data into the same area, is cost-effective, and has large capacity, targeting the warehouses of AI data centers. This is equivalent to publicly announcing: they are coming to seize the territory of mechanical hard drives (HDD) in data centers.

4. Where are the risk points hidden?

While the bullish logic is sound, the risks cannot be ignored.

The first point: Chinese supply. Changxin Memory once held the position of the highest market value company in China, and major PC manufacturers like HP, Acer, and ASUS have already started small-scale imports of its products; Yangtze Memory's NAND shipments have entered the global top three. Chinese manufacturers have yet to penetrate the high-end market, but their strategy could be to start from low-end models and gradually push prices down—this is the Damocles sword hanging over all storage manufacturers.

The second point: the psychological trap of cyclical stocks—when prices rise, no one believes they will fall. Micron's stock price fell 23% from its peak without any new financial reports being released; Kioxia was even harsher, dropping 48% before rebounding. Now the market itself is debating: is this wave of rise the last surge before peaking, or a consolidation at mid-mountain? No one can provide an answer in advance.

The third point: putting all demand eggs in one AI basket. The "off-balance sheet AI commitments" of nine major tech companies—signed outside of the balance sheet, not yet turned into actual spending on AI procurement and investment commitments—approaches $3 trillion. The demand looks enormous, but once the giants enter a "digestion period," meaning they pause new orders and first utilize existing computing power, storage demand will be the first to experience a gap. Moreover, it is worth noting that investment bank Bernstein has raised its WFE spending expectations for the next two years by 75%—WFE refers to wafer fab equipment spending, which can be understood as the money storage manufacturers spend on machines and building new production lines. A significant increase in equipment orders means the seeds of the next round of overcapacity have already been sown.

5. In conclusion: the medium to short-term trend remains, but the era of blind buying is over

After laying out both sides of the argument, the conclusion is quite clear: in the medium to short term, the storage sector is likely to maintain a bullish trend, and the price increase trend can last at least until 2027. But it must also be made clear—at this position, it is no longer a phase where one can earn by buying with their eyes closed.

Ordinary investors need to closely monitor these signals:

First, the month-on-month slope of NAND contract prices, that is, how much the contract price rises each month compared to the previous month; if the rate of increase slows down or even flattens, it indicates that the logic of shortage is loosening; second, the coverage rate of long-term contracts by original manufacturers; if the proportion of long-term contracts starts to decline, it indicates that manufacturers themselves are not so confident about the future; third, the progress of high-end imports of Chinese memory; once Changxin and others break into the high-end market, the price system will be reshuffled.

Whichever of these three signals turns first will represent the peak of the current market trend.

Important Notice: This article is written and provided by an external contributor. The market data, institutional forecasts, and historical statistical patterns mentioned in the article are for reference only and do not constitute investment advice, an offer, or an invitation to offer, nor do they constitute a recommendation for buying or selling related securities. The views, analyses, and judgments in the article represent the author's personal opinions and do not represent the official position of BIT or BIT Research. BIT does not guarantee the accuracy, completeness, or timeliness of the related content. The opinions of third-party institutions cited in the article (including KeyBanc, Bank of America, Bernstein, BTIG, etc.) represent their own or individual analysts' opinions and do not represent BIT's position, nor do they guarantee accuracy. Historical patterns and past performance do not represent future results, and long-term profit forecasts carry significant uncertainty. Investment involves the risk of principal loss, especially in the storage chip industry, which has strong cyclicality, and market prices may fluctuate significantly. Investors should make decisions based on their own financial situation and risk tolerance and consult independent professional advisors.