A once-in-thirty-years super cycle for memory chips? UBS: In the triopoly landscape, DRAM will continue to be in short supply until the end of 2027.

A once-in-thirty-years super cycle for memory chips? UBS: In the triopoly landscape, DRAM will continue to be in short supply until the end of 2027.

The storage chip industry is standing at a rare historic inflection point.

According to Wind Trading Desk, UBS's latest research report believes that AI-driven demand for HBM is continuously eating into DDR production capacity. Together with the synchronous explosion of traditional server replacement cycles and storage SSD demand, the global DRAM market's supply-demand gap will persist until the fourth quarter of 2027, marking a storage supercycle unprecedented in the past thirty years.

At the same time, the DRAM market has been highly consolidated into the current triopoly pattern. There is insufficient "competitive expansion" incentive on the supply side to cushion demand shocks, so the intensity of cyclical corrections has lessened, and the price upward pressure brought by this supercycle will be more persistent.

SK Hynix holds a leading position in the HBM sector, and UBS has raised its 12-month target price from 1.55 million KRW to 1.7 million KRW, simultaneously lifting its earnings forecasts significantly: the 2026 and 2027 earnings per share forecasts are raised by 22% and 29% respectively, with the operating profit forecast for 2026 as high as 286 trillion KRW, about 57% higher than the market consensus.

In terms of recent catalysts, the listing of SK Hynix ADR may come along with a stock repurchase plan in the Korean market, forming a "double benefit"—enhancing overseas investor convenience while directly supporting the stock price in the Korean market.

Once in Thirty Years: The Underlying Logic of DRAM Supply Shortage Cycle

This storage chip cycle is "once in thirty years" and historically rare, driven by the resonance of multiple demand-side shocks.

First, the explosive growth of HBM demand is continuously squeezing traditional DDR production capacity. By the end of 2026, global DRAM front-end HBM dedicated capacity will reach 500,000 wafers/month (equivalent to 12-inch wafers), accounting for 25% of total industry capacity; by 2027 about 31%.

Second, the traditional server replacement cycle is proceeding synchronously, with continued release of enterprise demand for DDR5 and other conventional DRAM. Meanwhile, expansion of AI infrastructure is also driving incremental demand for servers and storage SSD.

Third, wafer capacity expansion outside China is almost entirely focused on HBM, and new supply of conventional DRAM is extremely limited. The three major suppliers (SK Hynix, Samsung, Micron) all show significant restraint in expanding non-HBM capacity.

The DRAM market has been highly consolidated into the current triopoly pattern. There is insufficient "competitive expansion" incentive on the supply side to cushion demand shocks. The intensity of cyclical corrections has lessened, and the price upward pressure brought by this supercycle will be more persistent.

SK Hynix's HBM Leadership: Short-term Disturbances Cannot Alter the Long-term Pattern

The market recently has two specific concerns about SK Hynix: first, the partial redesign issue for HBM4 products; second, HBM shipment volume. Neither constitutes a fundamental threat to its industry position.

Regarding HBM4 redesign, SK Hynix is currently nearing completion of minor redesigns for logic chips and DRAM dies, and is actively advancing final certification for Nvidia's Rubin platform. Accordingly, SK Hynix's market share in HBM4/Rubin platform is assumed to adjust to 60%, Samsung to 30%, and Micron to 10%.

In terms of shipment volume, SK Hynix's HBM bit shipments are expected to reach 18.4 billion Gb in 2026 (up 46% year-on-year) and 24.7 billion Gb in 2027 (up 34%). Based on industry bit market share, SK Hynix is expected to lead the HBM market for two consecutive years, with shares of 51% and 44% respectively.

The technical accumulation and customer trust that SK Hynix has built in HBM execution ability over the past several years forms the core barrier for it to maintain leadership. The HBM4 redesign is a local optimization, not a directional reversal.

Earnings Far Exceed Market Expectations: Significant Room for Valuation Recovery

Based on the above, UBS's earnings forecast for SK Hynix far exceeds market consensus, and the gap is remarkable.

On the revenue side, the forecast for total revenue in 2026 is 355.1 trillion KRW (market consensus 251.6 trillion KRW, about 41% higher), and 531.6 trillion KRW in 2027 (market consensus 323 trillion KRW, about 65% higher).

For operating profit, the forecast is 286 trillion KRW in 2026 (market consensus 182 trillion KRW, about 57% higher), and 443.5 trillion KRW in 2027 (market consensus 235.6 trillion KRW, about 88% higher).

Specifically, in the first quarter, operating profit for Q1 2026 is forecast at 41.76 trillion KRW, far higher than the market consensus of 32.2 trillion KRW.

On the cash flow side, free cash flow is expected to be 143.8 trillion KRW in 2026, and further rise to 269.8 trillion KRW in 2027, corresponding to free cash flow yields of about 21.6% and 40.5%, respectively.

Valuation and Catalyst: ADR Listing and Stock Repurchase Offer Dual Support

For valuation, SK Hynix is valued using a 12-month forward price-to-book ratio, based on a long-term ROE forecast of 32.1% and an equity cost of 11.2%, resulting in a target P/B ratio of 2.86, corresponding to a target price of 1.7 million KRW.

The current 1.54 times NTM price-to-book ratio implies a long-term ROE of only 17.3%, not only below the past ten-year average of 21%, but also far below UBS's forecast of 32.1%.

This valuation gap means the market has not fully priced in SK Hynix's higher DRAM profitability and its strong free cash flow generation capability.

In terms of recent catalysts, ADR listing may come together with a stock repurchase plan in the Korean market, forming a "double benefit"—improving overseas investor allocation convenience and directly supporting the stock price in the Korean market.

UBS research team believes that around April 24th, 2026 (about the time of Q1 earnings announcement), there will be positive catalysts, including smartphone sales data, pricing negotiation results, and GPU supply chain developments.

 

~~~~~~~~~~~~~~~~~~~~~~~~

The above wonderful content is from Wind Trading Desk.

For more detailed interpretation, including real-time insights and frontline research, please join Wind Trading Desk Annual Membership

Risk Warning and DisclaimerThe market involves risks, investment needs caution. This article does not constitute individual investment advice and does not take into account the special investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, viewpoints, or conclusions in this article fit their particular situation. Investing accordingly is at your own risk.