Chip stocks – including Micron, Seagate – are tanking as Wall Street sees falling memory chip demand

Semiconductor stocks are dropping Wednesday after Goldman Sachs warned about deteriorating memory chip demand.

The firm lowered its rating to neutral from buy for shares of memory chipmaker Micron.

"We see incrementally weaker demand datapoints combined with accelerating supply growth" in the fourth quarter and in the first half of next year, the firm's analyst Mark Delaney said in a note to clients Wednesday. He added they now expect "incrementally more DRAM [memory chip] oversupply" in the first half of next year.

The analyst also sees "weaker fundamentals" for the flash memory market.

Micron shares are down 5 percent Wednesday, while flash memory storage makers Western Digital and Seagate dropped more than 2 percent.

Chip stocks are under pressure this month due to heightened concerns of slowing memory-chip demand.

Last week Morgan Stanley and an executive at KLA-Tencor said the memory chip market is deteriorating versus expectations, which drove a big drop in the semiconductor sector's shares.

Micron's stock is down 17 percent month to date through Tuesday and shares of Western Digital and Seagate are down more than 8 percent in the same time period.

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