HBM shortages drive up chip prices: Is the memory supercycle continuing?
From a purely economic and cyclical perspective, the current high valuations in the global memory sector, particularly among Chinese domestic players, are clearly unjustified.
Investors must remain clear-headed: Do not chase highs at the peak of the cycle. Bubbles will eventually revert to fundamentals. Respect the unchanging 30-year cyclical规律 of the memory industry.
The memory chip sector is widely recognized as the most cyclical track across A-shares, US stocks, and Korean equities. The industry rules are brutally harsh: profits explode during upcycles, while the entire sector suffers losses, clears out, and faces bankruptcy during downturns. Over the past three decades, the industry has undergone multiple rounds of brutal consolidation, perfectly illustrating the adage that 'cycles eat people.'
I. Thirty Years of Brutal Consolidation: From Over Twenty Giants to Only Three Survivors
In the 1990s, there were more than 20 major global memory chip manufacturers. After several rounds of price wars, overcapacity, and collapsing demand, only three absolute leaders remained—Samsung, SK Hynix, and Micron—monopolizing global production capacity.
The complete industry clearance cycle is clearly visible:
1. 1996–1998: Memory market downturn; Japanese companies incurred losses across the board, forcing NEC, Hitachi, and Mitsubishi to merge their DRAM businesses into Elpida.
2. 2001–2003: Bursting of the dot-com bubble; South Korea's Hyundai Electronics neared bankruptcy and was acquired by the SK Group, transforming into today's SK Hynix.
3. 2007–2009: Fierce industry price wars led to the direct bankruptcy and liquidation of Germany's Qimonda (formerly the world's second-largest) and the US-based Spansion Semiconductor.
4. 2010–2012: Concentrated release of capacity led to the bankruptcy of Japan's Elpida, which was acquired by Micron, formally solidifying the global triopoly structure.
5. 2018–2019: Overexpansion by giants caused memory prices to plummet by 60%–80%, resulting in significant losses across the entire industry.
6. 2022–2023: The industry faced another severe downturn, with prices halving again and countless small and medium-sized manufacturers being cleared out.
The reality of survival in the industry: Those who remain are not necessarily the ones with the strongest technology, but those backed by capital and state funding.
Germany's Qimonda had leading technology, but the government was unable to provide a bailout, leading to its bankruptcy; South Korea's Hyundai survived the downturn thanks to continuous financial support from its chaebol, eventually growing into a global memory giant. During cyclical downturns, liquidity is far more critical than technology.
II. This Super-Cycle Boom: Explosive Earnings, Yet Extremely Restrained US Stock Valuations
From 2025 to 2026, the massive expansion of AI computing power will drive a surge in demand for HBM and enterprise-grade storage, ushering the memory industry into its strongest boom cycle in history.
- SK Hynix's Q2 earnings surged sixfold
- Samsung Electronics' Q2 earnings surged thirteen-fold
Even as profits hit historical peaks, global capital markets remain extremely rational:
- SK Hynix's forward P/E ratio is only 7x
- Samsung Electronics' forward P/E ratio is only 10x
Valuations for the three US memory chip giants are also extremely conservative.
The price trends and valuations of core US-listed memory stocks fully validate the cyclical logic:
1. Micron (MU): Secured AI computing orders from North American cloud providers, reinforced by strict long-term contracts with locked pricing and a USD 22 billion deposit guarantee, ensuring the most stable cash flow. Yet, its dynamic P/E ratio at the cycle peak is only around 8x.
2. SK Hynix: Holds the largest market share in HBM with orders secured through 2027 and beyond; maintains a gross margin floor of 65%, offering a balanced risk-reward profile. The market assigns it only a 7x P/E ratio.
3. SanDisk (SNDK): A pure-play NAND cyclical stock without HBM growth as a hedge. It has experienced the largest decline in this cycle and carries the lowest valuation, with the market pricing it strictly as a strong cyclical play.
The underlying consensus in capital markets: Cyclical stocks are never allowed to command high valuations at the peak of the business cycle.
The core logic behind valuing cyclical stocks is contrarian pricing:
The higher the current profits, the more the market fears a future reversal.
For example: A company with a trillion-dollar market cap earns 100 billion in profit this year (implying a 10x P/E). After the cycle turns downward and profits halve to 50 billion, the valuation automatically rises to 20x.
Therefore, suppressing valuations at the peak of prosperity and lifting them at the trough of downturn has been an unchanging pricing rule for global capital over the past thirty years.
3. Changxin Valuation Comparison: 36x P/E, Severely Overdrawing Future Prosperity
Compared to the 7–10x peak-cycle valuations of the three overseas giants, the valuation bubble in domestic memory chipmaker Changxin is glaringly obvious:
- 2023: Net loss of RMB 19.2 billion
- 2024: Net loss of RMB 9.0 billion
- 2025: Turnaround to profitability, with net profit of RMB 7.1 billion
- 2026 Market Estimate: Net profit of approximately RMB 100 billion
Current market cap stands at RMB 3.6 trillion, implying an estimated P/E ratio as high as 36x, which is 3–4 times that of overseas industry leaders.
Core Risk of High Valuation: This round of high profits relies entirely on AI capital expenditure
The current supercycle in the memory sector is entirely underpinned by the annual AI capital expenditure of USD 700–74.5 billion by the four US tech giants: Microsoft, Amazon, Google, and Meta.
However, AI cash burn is not sustainable indefinitely:
1. Once capital expenditure by major US tech giants slows down and cools, memory demand will immediately weaken at the margin;
2. If the industry kicks off a new round of capacity expansion race, it is highly likely to replay historical price wars, causing profits to slide rapidly;
3. At current valuations, even with stable annual profits of RMB 100 billion, the payback period exceeds 30 years; if profits are halved, the payback period stretches directly to 60 years.
Assigning a P/E ratio of 36x at the peak of the cyclical industry's boom is completely unjustifiable from a purely commercial and economic perspective.
IV. Benchmarking against resilient internet assets: Severe misalignment in valuation cost-effectiveness
Using Tencent's steady performance for a direct comparison, the valuation disparity between cyclical and growth stocks becomes clear at a glance:
- 2023 Net Profit: RMB 115.2 billion
- 2024 Net Profit: RMB 194.0 billion
- 2025 Net Profit: RMB 224.8 billion
- First half of 2026: Continued steady growth, with a growth rate of 10%
Tencent boasts a market capitalization of RMB 3 trillion, corresponding to a mere 15x P/E ratio. Its earnings have risen steadily over the past decade without significant volatility or cyclical loss risks.
On one side stands an internet giant with a 15x P/E ratio and perpetual, stable cash flows;
on the other, a cyclical memory chip leader trading at 36x P/E, prone to extreme volatility and undergoing decennial cycles of loss clearance.
From a pure investment return and economic rationality perspective, ChangXin Memory Technologies' valuation surpassing Tencent's is entirely inconsistent with market-based pricing logic.
5. Final Dialectical View: Economically irrational, but industrially logical
Although market-based valuation is severely bubbly, from the perspective of national industrial strategy, this premium is inevitable:
Domestic high-end chips have long been subject to supply chokepoints, and memory storage represents the core breakthrough for semiconductor localization.
The market's willingness to assign bubble valuations essentially reflects a premium on national strategic imperatives:
1. High market capitalization and strong financing capabilities support continuous heavy investment in capacity expansion and technological breakthroughs;
2. The wealth effect attracts social capital and top-tier talent to continuously flow into the sector;
3. Leverage short-term capital market bubbles to secure long-term breakthroughs in domestic substitution.
Summary
1. Industry Reality: The memory chip sector is characterized by the strongest global cyclicality and the most brutal clearance phase; there are no perpetually high profits.
2. Foreign Capital Pricing: At peak cycles, memory giants in the US and Korean stock markets trade at merely 7–10x P/E ratios, reflecting extreme caution toward cyclicality.
3. Valuation Paradox: Domestic memory stocks are trading at 36x P/E, representing an extreme bubble at the cycle's peak.
4. Core Understanding: This valuation premium is not pricing in current performance, but rather future expectations for domestic substitution.
Investors must remain clear-headed: Do not chase highs at the peak of the cycle. Bubbles will eventually revert to fundamentals. Respect the unchanging 30-year cyclical规律 of the memory industry.
Risk Disclaimer: The above content only represents the author's view. It does not represent any position or investment advice of Futu. Futu makes no representation or warranty.Read more
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