As the list of concerns grows longer, how much longer can storage prices rise?

Goldman Sachs recently released a research report stating that the fundamentals of the South Korean memory chip industry remain strong, but the list of investor concerns is continuously growing.

The report indicated that the Goldman Sachs team held about 60 meetings and phone communications with investors over the past few weeks to discuss the investment outlook for the South Korean technology sector. Overall, investors remain optimistic about the memory industry, but their focus on several potential downside risks has noticeably increased.

Investors Overall Remain Bullish on the Memory Industry, AI Demand Still Seen as Key Support

The report stated that among all discussion topics, the memory industry remains the core focus for investors. Most investors believe that the current industry fundamentals are still solid, especially with memory prices continuing to rise and profitability improving, which keeps market sentiment bullish.

However, compared to a few months ago, investors have significantly increased their inquiries about potential risks. The main concerns include: a possible slowdown in AI capital expenditures, a potential decline in demand for smartphones and PCs, aggressive capacity expansions by memory manufacturers leading to increased supply, a possible drop in spot memory prices, and a potential slowdown in the rate of increase in memory prices starting from the second quarter of 2026.

Despite this, most investors still believe that the industry fundamentals remain healthy at least in the medium term.

Goldman Sachs stated that even if some of the above risks materialize, most investors still prefer to continue holding memory stocks, and even add to their positions during pullbacks.

The only factor that could change market sentiment is a significant decline in AI capital expenditures. If this occurs, investors generally believe that stocks across the entire technology supply chain could experience a substantial pullback.

Memory Price Upcycle May Last Until 2027

The report indicated that one of the key concerns among investors during most meetings was the extent and duration of the current memory price increase.

Investors generally believe that memory prices are likely to continue rising at least throughout this year and may extend into 2027. Additionally, due to ongoing supply tightness in the industry, market expectations for prices may be further revised upward in the short term.

Overall, investors' concerns about NAND supply are significantly higher than for DRAM, mainly because the technical barriers for NAND are relatively lower.

Strong HBM Demand May Lead to Higher Pricing

In the HBM (High Bandwidth Memory) sector, investors are particularly focused on the demand outlook and competitive landscape for HBM3E and HBM4.

Due to the higher requirements for pin speed in HBM4 and the greater technical difficulty, the market is paying attention to the progress of various companies in technological advancements. If the mass production of HBM4 proves to be challenging, it may further tighten supply and demand, thereby supporting an increase in HBM prices.

Many investors believe that memory manufacturers may leverage several factors to secure higher prices: strong HBM demand, ongoing tight supply and demand for traditional DRAM, and the difficulties in ramping up mass production of HBM4.

Memory Capital Expenditures May Exceed Market Expectations

Capital expenditures are also a focal point for investors According to the research report, due to the tight supply and demand in the three major areas of DRAM, NAND, and HBM, many investors believe that future capital expenditures in the storage industry may exceed the current general market expectations.

In terms of valuation methods, investors' preferences are also changing. An increasing number of investors are beginning to focus more on price-to-earnings (P/E) valuation rather than the traditionally more commonly used price-to-book (P/B) ratio. The reason is that market confidence in the sustainability of storage companies' profitability has significantly strengthened.

Analysis suggests that this confidence mainly comes from two aspects: first, the structural demand growth brought by AI, and second, more restrained supply expansion within the industry.

Additionally, the increase in long-term supply agreements (LTA) may also reduce the significant fluctuations in demand seen in past cycles.

Increased Attention on Samsung Electronics

According to the research report, at the individual stock level, investors hold a generally positive attitude towards Samsung Electronics and SK Hynix, without a clear preference.

However, compared to a few months ago, more investors have marginally shifted their views on Samsung Electronics to be more positive. This is mainly because Samsung has a larger exposure in the traditional storage market, stronger short-term fundamentals, and has made certain progress in HBM4 technology.

At the same time, investors still generally believe that SK Hynix will maintain its leading market share in HBM over the next few years. Furthermore, if the company promotes an ADR listing in the future, it may also benefit valuation enhancement.

Goldman Sachs pointed out that both companies are likely to generate considerable free cash flow (FCF) in the future, and the potential for increased shareholder returns is also an important reason why investors remain optimistic.

Among Non-Storage Companies, Samsung Electro-Mechanics is the Most Noticed

Among non-storage companies, Samsung Electro-Mechanics has received the most attention. The research report states that this may be related to its stock price significantly rising in February—an increase of over 60%, while the KOSPI index rose about 20%.

Investors are mainly focused on two factors, including the possibility of MLCC prices entering a new round of rising cycles, and the growth opportunities in ABF substrate business brought by AI server demand and new customers.

For LG Electronics, investors are mainly focused on the development potential of its robotics business and whether this business can bring profitability and valuation enhancement. At the same time, the market is also concerned about the profitability prospects of its home appliances and television business against the backdrop of rising costs.

For LG Display, the discussion focuses on the demand prospects for OLED in terminal markets such as televisions, mobile phones, and IT, as well as the competitive landscape in the industry.

Regarding LG Innotek, investors are particularly concerned about the potential risks brought by rising storage costs, as the company has a large exposure in the smartphone camera module sector. Additionally, the company's progress in substrate businesses such as ABF has also become a key focus for the market Risk Warning and Disclaimer

The market carries risks, and investment should be approached with caution. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at one's own risk