Analysis by the Financial Times highlights that demand for AI has driven an unprecedented surge in the memory chip sector, with Sandisk's stock price skyrocketing 1200% over the past six months. However, the industry's strong cyclical nature remains unchanged, and the current market is showing structural risks similar to those in 2022: suppliers are over-purchasing to secure orders from cloud vendors, hyperscale enterprises are overestimating demand, and duplicate ordering coexists with capacity expansion. Historical data shows that sharp increases in memory stocks are often followed by rapid pullbacks. Although this cycle benefits from technological differences such as HBM, cyclical patterns continue to play a role.
According to an analysis reported by the Financial Times, despite the unprecedented surge in the memory chip sector driven by artificial intelligence demand, the industry's strong cyclical nature has not disappeared. In the past six months, $SanDisk (SNDK.US)$ share prices have skyrocketed by 1200%, while $Western Digital (WDC.US)$ 、 $Seagate Technology (STX.US)$ 、 $Micron Technology (MU.US)$ and SK Hynix have also seen increases of 180% to 280%, becoming the most outstanding performers in the S&P 500 Index. This rally has raised market concerns that investors may be repeating the mistakes of the 2022 cycle reversal.
The report notes that AI-driven storage demand is the core driver of this round of growth. As memory prices continue to rise, Sandisk has transitioned from a cash-burning state in 2024 to generating nearly $1 billion in free cash flow last quarter. However, the storage industry is highly cyclical, with rapid demand fluctuations and lagging capacity adjustments often leading to sharp price swings.
The article cites warnings from industry insiders: "Investors have short memories." Historical data shows that between mid-2020 and early 2022, shares of Western Digital, Seagate, Micron, and SK Hynix all surged over 100%, only to erase all gains within the following nine months; similar volatility occurred in 2014 and 2018. The current market optimism is causing people to overlook the lessons of cyclical patterns.
Hyperscale procurement and capacity expansion may lead to a new round of oversupply.
Industry analysis indicates that the current memory market is showing structural risks similar to the 2022 cycle. To secure partnerships with hyperscale cloud computing firms, suppliers often procure memory in advance before securing confirmed orders to demonstrate their supply capabilities. However, not all suppliers ultimately secure contracts, resulting in order volumes far exceeding actual demand.
At the same time, hyperscale firms themselves tend to overestimate future demand. Once they adjust their order sizes, the excess supply will quickly translate into severe market oversupply. According to industry sources cited in the report, order volumes doubling or even tripling have already occurred, with production capacity expanding simultaneously. Samsung's recent announcement of a significant increase in DRAM production has further exacerbated potential pressures on the supply side.
Is this cycle different?
Despite the inherent cyclical risks in the memory industry, market analysis suggests that this AI-driven expansion phase may last longer than previous cycles. Jonathan Goldberg, an analyst at Digits to Dollars Advisory, stated:
"Looking back at history, the market always corrects itself eventually. This cycle has greater amplitude, so prices might continue to rise. Many semiconductor investors who weren't in the industry five years ago will say this time is different. But the truth is, the cycle hasn't changed."
On the other hand, advancements in high-bandwidth memory (HBM) are seen as a key variable that could reshape the industry landscape. This specialized high-performance DRAM is currently dominated by Samsung, SK Hynix, and Micron. Ben Bajarin, an analyst at Creative Strategies, pointed out:
This cycle has been largely driven by HBM, which is more differentiated and unlikely to become a homogenized product in the short term... I believe memory revenue has bottomed out and is rebounding.
The current market is at a juncture where technological iteration and cyclical patterns are intertwined, and the supply and demand dynamics of HBM will become one of the core factors influencing the length and shape of this cycle.
Editor/Doris
