Goldman flags 2 memory stocks to buy amid deeper sector pullback

Goldman Sachs has advised clients to consider purchasing shares in two memory stocks amid a deeper sector pullback. Samsung Electronics and SK Hynix have been identified as the two companies offering attractive risk/reward potential. The bank believes the market has overestimated China's ability to bridge the technology gap. Memory stocks, including Samsung, SK Hynix, Micron, SanDisk, Kioxia, and CXMT, have experienced a decline of 11% to 26% since October 10, wiping out over $700 billion in market value.

This drop followed news that Chinese DRAM maker CXMT had made progress on a new "4F2" cell architecture, with plans to release a server-memory product based on the technology by the end of 2026. Other factors, such as credit concerns, AI financing worries, and unexpected inflation data, likely contributed to the sector's decline.

Goldman noted that CXMT's shares also fell, as did those of NAND suppliers less exposed to the technology. DRAM prices have continued to rise. The analysts acknowledge that some concerns about technology progress are valid, but they still believe there is a significant technology gap, particularly in advanced node DRAM and HBM. Goldman feels the market has underestimated China's capacity ramp-up but overestimated the likelihood of a technological breakthrough.

The analysts cited the time needed to complete customer qualifications, achieve high-yield mass production, and narrow the gap in HBM. Samsung has a price-to-book ratio of 1.2 times for 2027 estimates and 0.9 times for 2028 estimates, while Hynix has a ratio of 1.4 times and 0.9 times, respectively. Goldman believes these below-book valuations suggest that a downcycle is priced in by 2028, which is more pessimistic than their own "higher for longer" outlook.

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