Key TakeawaysMemory chip stocks tumbled approximately 10% in recent weeks, with Micron and Sandisk each declining more than 10% following Google’s TurboQuant announcementGoogle’s new TurboQuant technology promises to cut AI memory requirements by a factor of six, triggering investor anxietyMorgan Stanley characterizes the recent decline as a constructive correction rather than a fundamental concernMemory capacity has emerged as the primary constraint for AI infrastructure expansion, surpassing GPU availabilityMorgan Stanley maintains Overweight recommendations on both Micron and Sandisk with $520 and $690 price objectivesMorgan Stanley continues to back memory semiconductor manufacturers following a significant market downturn that shook investor confidence in late March.The iShares Semiconductor ETF experienced approximately a 10% decline during the past month. Multiple factors contributed to the downturn, including valuation concerns, questions about demand sustainability, and emerging AI innovations.On March 24, Google introduced a novel compression technology dubbed TurboQuant. The innovation reportedly slashes memory requirements for operating AI models by as much as six times. The announcement triggered widespread investor unease.Both Micron and Sandisk experienced declines exceeding 10% in the immediate aftermath of the disclosure. Micron finished trading at $357 on March 27, though the stock maintained a 25% gain for the year-to-date period.Micron Technology, Inc., MUMorgan Stanley’s Joseph Moore challenged the negative sentiment in a research communication distributed on March 26.Moore reaffirmed Overweight recommendations for both Micron and Sandisk. The firm’s price objectives remain unchanged at $520 and $690, respectively.According to Moore, the selloff represents “a healthy pricing in of durability concerns” instead of indicating a fundamental transformation in market dynamics. The financial institution contends that memory manufacturers’ business strength is “more durable than the market thinks.”Memory Capacity Emerges as Primary AI Infrastructure ConstraintThroughout the previous two years, Nvidia’s graphics processing units dominated conversations as the critical component driving AI infrastructure investments. While this remains accurate, Morgan Stanley argues that memory has evolved into the primary limiting element.“Memory is a bottleneck, increasingly the bottleneck, to AI builds,” the research team stated. They observed that clients are now making advance payments for substantial volume commitments, indicating how constrained supply has become.According to Moore, DRAM excess capacity has been completely absorbed. “Everywhere we look we see indications that it is a true bottleneck,” he noted.AI’s portion of semiconductor expenditure could reach “well north of 50%,” according to the bank’s analysis. Increasing supply appears unlikely to match that intensity of demand.Morgan Stanley’s Assessment of TurboQuant’s ImpactMorgan Stanley specifically analyzed Google’s TurboQuant announcement, arguing that market participants misinterpreted its implications.The compression technology exclusively targets KV Cache memory, not 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, which represents a specialized and constrained category. Morgan Stanley characterized TurboQuant as “normal course productivity improvement,” rather than a demand-destructive breakthrough.The investment bank doesn’t anticipate gross margins approaching 81% to persist indefinitely. However, it identifies minimal justification for near-term margin compression.Morgan Stanley additionally highlighted robust prospects for free cash flow production from memory sector companies. The firm determined that “duration is all that matters,” and by that standard, market signals “all appear positive.”Micron and Sandisk retained their Overweight designations as of March 26, 2026.The post Morgan Stanley Stays Bullish on Micron (MU) and Sandisk After Memory Chip Selloff appeared first on Blockonomi.