Memory chips have proven crucial to artificial-intelligence development — and one analyst sees demand getting so intense that suppliers end up following a software-like subscription model that would benefit players like Micron Technology and Sandisk.
Melius Research analyst Ben Reitzes believes the end is near for software makers, which “are destined to lose seats and move to unpredictable consumption models,” as customers become less willing to sign long-term agreements in favor of AI.
Chip-related companies, meanwhile, “are getting promoted and becoming so valuable,” he said in a Monday note, as he initiated coverage of Micron Technology and Sandisk with buy ratings on both stocks.
Despite his bearish view of seat-based software-as-a-service subscriptions, Reitzes sees memory, optics and other critical AI-related suppliers “becoming more worthy of ‘subscriptions,’” which would aim to secure a minimum revenue to reach a certain gross margin — therefore following what he called an “‘inverse SaaS’ theme.”
Reitzes envisions that AI-related subscriptions “may not be as easy to understand as those known to SaaS,” since details of long-term agreements and so-called strategic collaboration agreements are confidential. Even if memory companies end up hurt by hyperscalers in these agreements, he said “the balance of power is shifting enough to make these agreements worthy of” attention from investors.
On his conviction that memory customers will want to “subscribe” to multiyear commitments, Reitzes sees the possibility for Micron’s and Sandisk’s valuation multiples to double, or even triple.
He added that he “wouldn’t be surprised if” he has to revise his multiple estimates higher as agentic AI and physical AI drive further demand for memory components.
Reitzes’s two-year price target of $1,350 for Sandisk’s stock represents about 26% upside from levels seen in Monday closing price, when it was up more than 8%. Additionally, his two-year target of $700 for Micron shares, which were up about 6% Monday, implies about 33% further upside.