A stark divergence between US memory and optical communication stocks emerged on Friday. Citigroup sharply lowered its price target for Micron, weighing heavily on the entire memory sector. In contrast, Applied Optoelectronics' (AAOI) better-than-expected earnings ignited the optical communication space, with Coherent surging 13% in a single day. These two converging narratives have sparked a fierce weekend debate over the "short memory, long optical" trading strategy.
The framework was first introduced by Citrini analyst Jukan, a well-known memory bull. On platform X, he claimed some hedge funds had already begun building positions based on this strategy. This was immediately challenged by prominent investor "White Hair Stock God" Serenity, who argued that memory fundamentals remain unchanged and that the market is merely "rotating between bottlenecks."
Citigroup Cuts Micron's Target, Memory Price Peak Expectations Rise
On Friday, Micron Technology (MU) fell about 1%, and SanDisk Corp. (SNDK) dropped over 2%, with the decline extending to Asia—SK Hynix fell more than 4%, while Samsung and Kioxia also moved lower. The pressure originated from Citigroup. Analyst Atif Malik maintained a "Buy" rating on Micron Technology but slashed the price target from $1400 to $1150. After discussions with memory suppliers and industry participants, Citigroup indicated that the growth rate of DRAM and NAND prices will gradually slow over the next four quarters, with prices expected to peak in May next year. Specifically, Citigroup projects DRAM price quarter-over-quarter growth rates of 23%/9%/2%/0% over the next four quarters, with a 3% decline expected in the second half of 2027. NAND price expectations are set at 29%/7%/0%/-1%, with a larger decline of 5% in the second half. The slowdown is attributed to capacity expansion by Chinese memory manufacturers CXMT and YMTC.
AAOI's Strong Results Ignite the Optical Communication Sector
In stark contrast to memory, the optical communication sector saw broad strength. U.S. optical module maker AAOI reported second-quarter revenue up 86% year-over-year to $191.9 million, with its data center business surpassing the $100 million mark for the first time. Non-GAAP earnings per share were $0.06, exceeding the high end of guidance. The company provided third-quarter revenue guidance of $255 million to $290 million, maintaining its full-year target of approximately $1.1 billion. On the day, Coherent surged 13%, Lumentum rose 6%, Corning gained 5%, and AAOI itself climbed 9%. In terms of product mix, 400G revenue was $48.4 million, up more than fourfold year-over-year. More indicative was 800G—second-quarter revenue of $12.8 million grew over tenfold year-over-year and doubled quarter-over-quarter, with management expecting nearly fivefold sequential growth in the third quarter. The growth focus is accelerating from 100G and 400G to higher speeds. Capacity signals are also strong. Management revealed that current customer demand exceeds supply capacity by 20% to 40%, meaning the constraint on growth is not demand but capacity. Current monthly production capacity for 800G and 1.6T is near 200,000 units, with plans to exceed 650,000 by the end of 2026 and over 930,000 by the end of 2027. CEO Lin Zongnan expects 1.6T revenue to exceed $70 million in the fourth quarter, stating, "A doubling in the first quarter of next year would not be surprising." However, he acknowledged that supply of key 1.6T components like DSP and TIA remains tight, with material, not capacity itself, being the primary constraint on fourth-quarter deliveries. Analysts believe AAOI's strong performance is a positive indicator for upcoming earnings reports from Lumentum and Coherent—both companies have endorsements from Nvidia through shareholdings and are viewed by the market as "pick-and-shovel" plays in the AI computing buildout.
Bullish Turn? "Short Memory, Long Optical" Sparks Weekend Debate
The weekend discussion was ignited by well-known memory bull Jukan's post on social platform X. He argued that the market may need to adopt a "short memory, long optical" strategy in the short term, citing three reasons. First, after the functional failure of the Korean leveraged ETF market, related investors face redemption pressure, which could add selling pressure on memory stocks. Second, Nvidia is adjusting its next-generation AI system architecture, with Rubin Ultra potentially reducing HBM allocation per rack in favor of optical interconnects to connect multiple racks. Third, expectations that memory prices will peak in the next two quarters are strengthening. Jukan emphasized that he remains constructive on memory long-term but is cautious in the short term. He noted that the focus of AI infrastructure investment is shifting from HBM capacity to overall data center architecture efficiency, where high-speed optical interconnects are a key direction. "White Hair Stock God" Serenity then joined the debate, taking a clear stance: still bullish on memory. Serenity's core argument is that it is primarily stock prices, not fundamentals, that have changed. He pointed out that Coherent and Lumentum's lasers sold out two years of capacity during the July downturn, and AAOI's demand imbalance was already clear in its previous quarter's conference call. There was no deterioration in these companies' fundamentals during the July crash—"only the stock prices changed after the liquidation." Yet, many investors who called AAOI a "scam" when it fell to $75 are now turning bullish after it rose to $140, "but the bottlenecks in optical transceivers and indium phosphide substrates haven't changed at all, and may even be worse." For memory, Serenity said he sees a lot of retail panic selling, "but these same people were cheering just a month ago for Micron signing 16 supply agreements and Samsung's record operating profit." Serenity believes that Nvidia's memory optimization for Rubin Ultra is something Nvidia does with every generation, and the current market capitalization of memory stocks relative to their operating profit levels is "absurd," especially as memory becomes a structural demand, with supply-demand imbalances set to worsen next year. "AAOI is the same company at $140 and $75. Samsung is the same company at a market cap of 1.5 trillion and 980 billion. What changes are valuation and narrative—often noise—while the market rotates between sectors," Serenity wrote.
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