Key Takeaways
- Memory chip stocks experienced approximately 10% decline last month, with Micron and Sandisk both dropping more than 10% following Google’s TurboQuant announcement
- Google’s TurboQuant technology promises to compress AI memory requirements by up to 6x, creating investor concerns
- Morgan Stanley characterizes the recent decline as a constructive market adjustment rather than fundamental deterioration
- Memory capacity has emerged as the primary constraint limiting AI infrastructure expansion, surpassing GPU availability
- Morgan Stanley maintains Overweight recommendations on Micron and Sandisk with $520 and $690 price objectives
Morgan Stanley has reaffirmed its confidence in memory semiconductor manufacturers following a significant market correction that unsettled investors in late March.
The iShares Semiconductor ETF experienced approximately 10% depreciation during the past month. Multiple factors contributed to the decline, including valuation anxieties, demand uncertainty, and emerging AI innovations.
Google introduced a compression technology named TurboQuant on March 24. The solution promises to compress memory requirements for AI model execution by as much as six times. The announcement triggered investor apprehension.
Both Micron and Sandisk experienced declines exceeding 10% in the trading sessions that followed. Micron settled at $357 on March 27, while maintaining a 25% gain year-to-date.
Morgan Stanley analyst Joseph Moore challenged the negative market reaction in research commentary issued on March 26.
Moore confirmed Overweight recommendations on both Micron and Sandisk. His firm’s price objectives remain unchanged at $520 and $690, respectively.
He characterized the selloff as representing “a healthy pricing in of durability concerns” versus an actual transformation in demand fundamentals. The financial institution believes the resilience of memory manufacturers remains “more durable than the market thinks.”
Memory Capacity Emerges as Primary AI Infrastructure Constraint
Throughout the previous two years, Nvidia’s GPU products received predominant focus as the central component driving AI infrastructure investment. While this remains accurate, Morgan Stanley identifies memory as the critical limiting factor.
“Memory is a bottleneck, increasingly the bottleneck, to AI builds,” the research team stated. They observed that clients are advancing payments for substantial volume commitments, indicating how constrained supply has become.
DRAM availability has completely tightened, according to Moore. “Everywhere we look we see indications that it is a true bottleneck,” he stated.
AI’s portion of semiconductor capital expenditure could reach “well north of 50%,” the firm projected. Expanding production capacity appears unlikely to match this magnitude of demand.
Morgan Stanley’s Analysis of TurboQuant Impact
Morgan Stanley examined Google’s TurboQuant technology specifically, arguing that market participants misinterpreted its significance.
The compression approach applies exclusively to KV Cache memory, rather than total memory consumption. “They are just talking about KV Cache memory, not memory overall,” the firm clarified.
KV Cache typically resides in high-bandwidth memory, a specialized and constrained category. Morgan Stanley described TurboQuant as “normal course productivity improvement,” rather than a demand-eliminating innovation.
The investment bank acknowledges that gross margins approaching 81% will eventually moderate. However, it identifies limited catalysts for near-term margin compression.
Morgan Stanley also highlighted robust prospects for free cash flow production from memory sector companies. The firm emphasized that “duration is all that matters,” and by this metric, signals “all appear positive.”
Micron and Sandisk retained their Overweight ratings as of March 26, 2026.
