On January 26, 2024, the SK Hynix flag (R) and the Korean national flag (L) fly outside the Bundang office in Seongnam City.
Jung Young Jae | AFP | Getty Images
LONDON — Outsized returns in memory stocks have contributed to strong gains in U.S. and South Korean stock markets in recent years, but market watchers warn investors are forgetting market cyclicality at their own peril.
The memory industry has been experiencing a period of sustained growth since the launch of ChatGPT in December 2022. This has led to a huge demand for high-bandwidth memory (HBM).
samsung and SK Hynix is one of the largest manufacturers of HBM chips, and its shares have risen 114% and 186%, respectively, since the beginning of the year. US base micron technology and sandisk In 2026, they have made progress of 141% and 156%, respectively.
Central to the theory behind the bull market in memory stocks is the belief that the industry has broken away from historical cyclicality, in which demand for storage fluctuates widely while supply remains largely fixed.
Executives argue that AI could upend the industry’s boom-and-bust history, and that structural supply shortages could keep prices high for years.
William de Geal, portfolio manager at Blue Box Asset Management, told CNBC’s European edition on Wednesday that the industry tends to have “a lot of ups and downs.”
“Long-term, this is a pretty scary industry,” he says.
“I wonder if that’s still the case every time people claim that the memory cycle is over. Now, just before everything went horribly wrong, this industry has become a long-term value-creating industry.”
new innovation
Memory chips are currently in very limited supply, but Alphabet’s Google announced on March 24th a new compression method, TurboQuant, which it claims can reduce the amount of memory needed to run large language models by one-sixth.
It is designed to make AI models more efficient, which is a key goal for leading research institutes.
Such developments could reduce demand for AI memory chips, a key component for training the giant LLMs of companies like Google, OpenAI, and Anthropic.
Deutsche Bank wrote in a note on Tuesday that investors should “continue to brace for continued AI-related disruption,” as evidenced by the release of TurboQuant, which triggered a sharp decline in the stock price of the largest memory provider.
However, the analysts added that it “remains to be seen” whether TurboQuant technology will cause a structural shift in demand.
John Cunliffe, head of investment at asset manager JM Fin, told CNBC that there is scope for production to ramp up significantly over the next three years and supply constraints to ease, “especially if AI demand grows at a more normal pace.”
“Today’s stock prices assume that prices will remain high for a long time, that companies will be very disciplined not to overinvest, and that profit margins will be much better than in the past,” he added.
“We would also like to highlight that the sector has experienced a high degree of congestion in recent weeks, making it vulnerable to a shakeout.”
Predicting when memory supply will outstrip demand is an impossible task, said Andrew Lapping, chief investment officer at Ranmore Fund Management, but investors should be careful when investing in an industry that has “historically average returns on capital but is priced to generate very high returns in the future.”
“Leopards don’t change their spots very often,” Lapping said of possible structural changes in the memory field.
Korea concentration risk
Samsung and SK Hynix are responsible for taking South Korea’s COSP to stratospheric heights by 2025-2026. Together, these two stocks account for more than 50% of the total index.
Steve Bryce, global chief investment officer at Standard Chartered, told CNBC’s Squawk Box Asia on May 13 that he believes peak optimism for Korean stocks is “not too far off.”
“I was in South Korea last week advising clients to lock in profits in a portion of their portfolio and switch to a globally diversified portfolio,” he said.
Nevertheless, some banks remain bullish on the prospects for both companies, with Nomura predicting that SK Hynix’s stock price will reach 4 million won and Samsung Electronics’ 590,000 won in the next 12 months.
This means Samsung’s stock price will rise by 20%, and SK Hynix’s stock price will double based on current prices.
— CNBC’s Arjun Kharpal also contributed to this report.
