Memory stocks tumble after Seagate warns on difficulty of meeting demand, bond yields edge higher

Memory stocks are cratering on Monday after media reports indicating that Seagate Technology Holdings CEO Dave Mosley warned that it would “just take too long” to boost capacity to meet AI-fueled demand.

Micron, Sandisk, and Western Digital are down in addition to Seagate.

Another place to look to help explain the group’s sudden travails (lumping together flash, storage, and high bandwidth): Memory stocks have displayed an elevated level of momentum, and momentum stocks have generally come under acute pressure during sudden bond market selloffs.

Mosley’s answer, delivered at a JPMorgan conference, is worth reading in full, as the summarized media reports miss some of the nuance (emphasis added):

“What our customers are driving us for right now is more exabytes. And we believe that the way to get the most exabytes is to take our talented teams and really go through these technology transitions. We're targeting mid-20s percent growth, which is enormous CAGR. And the only way we're going to get there is to be able to go through those technology transitions, if you will, to take a 3 terabyte per platter product to a 4 terabyte per platter to a 5 terabyte per platter year over year over year. And so that's really the way we're driving it. If we took the teams off and started building new factories or bringing up new machines, it would just take too long. You would end up more capacity, if you will, but then you'd slow the rate of growth on that technology. So back to your question directly, the wildcard really is in unit capacity for disk drives, which we again could be fairly flexible with once we package those heads and media. That gets down to more customer diversification and edge and edge AI and all those use cases, which I think could come someday. So we would take the heads and media that we have planned and divert them somewhere else should those applications take hold.

To grossly oversimplify Mosley’s answer, he’s saying that in a resource-constrained environment, technology improvements are the better way to meet demand than building out more capacity.

Reasonable folks can quibble about how negative these remarks really are for the industry.

On one hand, not getting over their skis on capex is something that, all else equal, would protect profitability over time and avoid the boom-bust cycles that have plagued the industry.

On the other hand, that gives more time for competitors (especially those from China) to try to step in and meet the market’s appetite for memory. To that end, Changxin Memory Technologies is posting massive growth as it readies for an IPO.