Source: Wall Street View, Author: Zhao Ying

With the demand for ai and the combination of insufficient capital expenditures over the past two years, the memory market is experiencing an unprecedented "super cycle." In terms of product structure, the revenue from 10-30 billion yuan products is 401/1288/60 million yuan respectively.

Morgan Stanley stated in its report on Thursday that storage will experience an unprecedented supply-demand imbalance, and memory prices will rise sharply:

The rapid development of ai will lead to a supply-demand imbalance in DRAM and HBM, and it is expected that the supply shortage rate of HBM will be -11% in 2025, and the supply shortage rate of the entire DRAM market will be -23%. In particular, the demand for HBM will increase significantly and may account for 30% of the total DRAM supply.

Due to the shortage of DRAM supply, coupled with insufficient capital expenditures over the past two years, there are no new wafer factories or large-scale wafers available, which will provide power for the memory market's super cycle.

Memory prices will also rise sharply, and it is expected that the price of commodity storage products will rise at a double-digit rate per quarter in 2024, and the price of HBM will be even higher in 2025. Server DRAM and ultra-high-density QLC solid-state drives will lead the price increase.

Looking further, SK Hynix and Samsung, who have a strategic position in the memory market, will further increase their market share:

The earnings per share forecast for the memory industry in 2024-2025 has been raised by 24-82%, which is 51-54% higher than the latest consensus.

SK Hynix will take the lead. We believe that the market consensus underestimates its potential for market share growth. It is expected to have the largest share of the HBM market in 2025, and the profit margin will also increase significantly. We have raised its target price by 11% to KRW 300,000, with about 30% upside potential. Samsung Electronics' target price has been raised to KRW 105,000, with a 36% upside potential.

This storage cycle is different.

According to Morgan Stanley, the memory market is cyclical, and the overall path of the cycle is similar. The capital investment cycle is generally longer, and expanding capacity requires 2-3 quarters. New factory construction takes 2-3 years.

The memory industry usually experiences a brief supply-demand balance every two years, driven by the long-term capital investment cycle of the semiconductor manufacturing industry. Capacity expansion in the expansion cycle usually requires 2-3 quarters, and the construction and production of new wafers require 2-3 years.

The reasons for the up-cycle include the internet, cloud computing, Covid-19, and ai, among others, which have led companies to view the cycle as a new phenomenon. However, new capacity often goes online when the industry least needs it.

But this cycle is different. Morgan Stanley pointed out that:

Compared with the past, the capital expenditures in the industry during this cycle are far lower than the level required to maintain capacity, and capacity has been declining since the third quarter of 2022.

This lack of investment is happening at a time when the memory supply chain is rapidly shifting to HBM, and the wafer capacity required per bit of HBM is twice that of ordinary DRAM, and its production yield is also lower.

Morgan Stanley expects that by 2025, the market share of HBM will increase, and the overall market supply shortage will be more obvious:

It is expected that by 2025, the total addressable market (TAM) of HBM will increase significantly from USD 37 billion in 2025 to USD 70 billion in 2027, and its market share will account for more than 30% of the entire DRAM market, and the blended price will rise by more than 10%.

From 2025, the ai upgrade cycle for smartphones and personal computers may require additional memory capacity, and the market is expected to face severe supply shortages. The supply shortage rate of HBM will be -11%, and the supply shortage rate of the entire DRAM market will be -23%.

In terms of prices, SK Hynix and Samsung Electronics are actively expanding their production capacity of HBM and DRAM. It is expected that the contract price of DRAM in the second quarter of 2024 will increase by 13-18% quarter-on-quarter, and may increase by 10-15% in the third quarter. Morgan Stanley stated that:

With the changes in customer behavior, ensuring supply is increasingly prioritized over pricing. The demand for smartphone oems from China is expected to continue to rise until the third quarter, while PC ODM/oem will continue to ensure memory supply while maintaining inventory close to 20 weeks for some large PC oems. Industry production is still below demand, and production cuts are continuing. The improvement of the demand environment also brings greater certainty to the price prospects in the second half of 2024.

The market share of leading companies in the industry will further increase.

The AI-driven memory 'super cycle' will bring growth in market share for SK Hynix and Samsung Electronics. Daiwa raised SK Hynix's target price by 11% to 300,000 won, with about 30% upside, and expects SK Hynix's EPS for 2024 and 2025 to be 59% higher than expected, with earnings guidance for Q3 2024 to be higher.

Daiwa raised Samsung Electronics' target price to 105,000 won, with about 36% upside, and pointed out that Samsung Electronics' qualification for Nvidia will be crucial in 2025. The best outcome for Samsung is to obtain the HBM3E qualification next year to avoid any supply interruption in GPU demand. The worst case is that Samsung may need to shift its production of more than 5 billion Gb of HBM wafers to the commodity DRAM market. If Samsung's HBM wafer production capacity is redirected to DRAM, it could have a significant impact on DRAM market supply and increase supply growth.

Editor/Lambor