Goldman flags 2 memory stocks to buy amid deeper sector pullback

Investing.com -- Goldman Sachs told clients in a new note that two names offer an attractive risk/reward after a sharp sell-off in memory stocks.

Samsung Electronics and SK Hynix are the stocks in question. The bank argued that the market has overestimated China's ability to close the technology gap.

Shares of major memory suppliers, including Samsung, SK Hynix, Micron, SanDisk, Kioxia and CXMT, have fallen 11% to 26% since Oct. 10. The decline has wiped well over $700 billion from the sector's market value.

The slide followed news that Chinese DRAM maker CXMT had made progress on a new "4F2" cell architecture. Its president also said the company plans to roll out a server-memory product based on the technology by the end of 2026.

Goldman said other factors likely contributed to the drop, including credit and AI financing concerns and a higher-than-expected CPI reading.

It noted that CXMT's own shares fell, as did NAND suppliers that are less exposed to the technology. DRAM spot prices, meanwhile, have continued to trend higher.

"Bottom line, while we believe some concerns on the technology progress are appropriate and the capacity gap is narrowing, we believe there is still a significant technology gap, especially in advanced node DRAM and HBM," the analysts wrote.

Goldman feels the market has underestimated China's capacity ramp-up but overestimated the potential for a technology breakthrough. It pointed to the time needed to complete customer qualifications, reach high-yield mass production and narrow the gap in HBM.

Samsung trades at 1.2 times price-to-book on 2027 estimates and 0.9 times on 2028 estimates, while Hynix trades at 1.4 times and 0.9 times. Goldman said these below-book valuations imply that a downcycle is priced in by 2028, "which is much more pessimistic compared to our 'higher for longer' view."

The bank cautioned that there may be few catalysts for a quick recovery in the share prices in the near term.