The coronavirus pandemic is spurring on a big shift in the memory chip market.
Citigroup analysts led by Peter Lee said in a note this week that the COVID-era is pushing ahead a shift toward online and automation in manufacturing, particularly when it comes to digital infrastructure led by Multi-Access Edge Computing, or MEC, and the trend is sure to continue in a post-coronavirus world.
MEC, also referred to as edge computing, refers to a cloud-based IT service environment that’s found at the edge of a network that brings the data being processed to where the data is being used.
“Specifically, we expect the services sector to increase its reliance on the online space and the manufacturing sector to expedite its shift toward automation/smart factories while industrial infrastructure sees an increasingly larger role of digital infrastructure, especially with the rollout of 5G,” Lee wrote in the note to clients.
According to the Citi analysts, cloud and MEC may join up to handle high-computing tests that edge devices like smartphones and laptops previously handled, and said MEC could also play a big role in online and automation services and cloud streaming gaming.
Given this, demand for DRAM (dynamic random-access memory) will see compound annual growth of 35%.
While the coronavirus pandemic has hurt demand for smartphones and other devices, and thus demand for memory chips, the Citi analysts anticipate the global memory market will see a recovery beginning in the second quarter of 2021.
“The recovery will be supported, in our view, by memory demand recovery and limited supply growth,” Lee wrote.
This recovery in demand will be a boon for stocks like LAM Research (NASDAQ: LRCX), Tokyo Electron (OTC: TOELY), and Advantest (OTC: ATEYY), which the Citi analysts rate as buys as they are the best semiconductor production and memory tester picks.
As for MEC, the analysts say SK Telekom (NYSE: SKM) is best positioned.
Morgan Stanley analyst Joseph Moore also likes LAM Research, recently upgrading the stock to outperform.
Moore wrote that “multiple concerns have left us on the sidelines for a large move, and there are still myriad of challenges as we move through this year,” however, moving forward, “we favor LAM over peers given the higher exposure to memory… where we see trailing spending… improving from here.”