We revise our forecasts for Samsung Electronics and SK Hynix following Micron’s earnings, updates on long-term supply agreements, or LTAs, and artificial intelligence investment plans announced by the South Korean government on June 29.
Why it matters: DRAM and NAND prices continue to exceed prior assumptions, reflecting ongoing tight supply conditions. Hyperscaler-led AI investments remain robust, and resulting memory demand is driving unusually strong bargaining power for memory makers.
- We now expect DRAM and NAND prices to rise 53% and 70% for SK Hynix, and 42% and 93% for Samsung in the second quarter, respectively, above our prior forecasts. Beyond surging demand, we see this driven by output further tightening from HBM4 ramp-up and process migration in NAND by both players.
- We believe LTAs to include volume commitments, price bands, and guarantees, which we estimate at 20% of contract value, and mostly span three years. We think few customers will sign four- to five-year contracts as they will likely refrain from being locked into rigid pricing for such a long period.
The bottom line: We raise our fair value estimates for Samsung Electronics and SK Hynix to KRW 330,000 and KRW 2,400,000, respectively. The current memory upcycle is tracking substantially stronger than expected, but our base case continues to assume normalization in cycle dynamics, limiting upside at current levels.
- Our revision reflects strong near-term earnings and margin support from LTAs extending into 2028. That said, we expect massive supply over the next two years to improve market dynamics, leading to a downturn in 2029 and 2030, partially moderated by lapsing LTAs.
- Alongside the government initiatives, both companies plan to invest KRW 2,000 trillion in AI over the next decade, with 40% allocated to memory fabs. Including existing pipelines, we foresee that Korean memory wafer capacity could more than triple, reinforcing our view of long-term cyclicality.
