No chasing HBM, focusing on production capacity! Kioxia executive: We have the "right products," AI data centers are in a period of storage hunger.

In this round of AI-driven investment frenzy, as competitors fiercely battle for market share in high-bandwidth memory (HBM), Japanese storage giant Kioxia has chosen a different path, focusing its strategic priorities on the urgent demand for high-density storage in AI data centers, thereby achieving significant cash flow growth and market advantage.

According to Bloomberg, Kioxia Executive Chairman Stacy Smith said in an interview in Tokyo that competitors are currently fully focused on the HBM market, leading to insufficient investment in capacity expansion for solid-state drives (SSD) and other advanced NAND storage devices. However, cloud service providers also urgently need such devices to support massive AI data throughput. Smith emphasized that Kioxia has "exactly the right product leadership" and has entered this niche market at "exactly the right time."

This differentiated strategy is driving a strong recovery for the Tokyo-based chipmaker. Since its initial public offering (IPO) on the Tokyo Stock Exchange at the end of 2024, Kioxia's share price has surged more than thirteenfold, as investors bet on its growth potential in the AI storage sector. The renewal of its long-term partnership with SanDisk and related financial arrangements further consolidate market confidence in its product competitiveness.

Dodging the HBM Red Ocean, Targeting NAND Supply Shortfalls

The current storage chip market landscape is highly polarized. Giants like Samsung, SK Hynix, and Micron are deeply engaged in an arms race in the HBM market, as these high-profit products are essential components of Nvidia's AI accelerators. This has led these manufacturers to relatively reduce investment in their traditional stronghold, the NAND sector.

Smith pointed out that this allocation of resources creates opportunities for Kioxia. High-performance storage demands from AI have significantly increased the premiumability of higher bit-density NAND products. Hyperscale cloud service providers, seeking more energy-efficient storage solutions, are actively exploring NAND-based solutions, which not only intensifies the chip supply shortage overall but also directly boosts Kioxia’s pricing power. This dynamic is reshaping an industry once known for its intense cyclical volatility.

Bloomberg Intelligence analyst Jake Silverman noted that SanDisk's third-quarter earnings guidance exceeded expectations by 163%, reflecting the ongoing rapid rise in NAND prices since October. Due to a lack of substantial capacity increase in the next one to two years, with larger models and expanded context windows driving higher storage intensity—and underpinned by strong AI inference demand—prices still have room to rise further.

Strategic Capacity Expansion and Management Changes

To seize market share, Kioxia plans to expand capacity at a rate slightly faster than the overall market. Smith revealed that the company's bit growth rate is projected to be around 20% this year, with expansion pace slightly above that.

This expansion plan will be implemented under new leadership. Kioxia announced this week that Executive Vice President Hiroo Oota (age 63) will succeed Nobuo Hayasaka (age 70) as CEO. Hayasaka previously led the company through a severe industry downturn and successfully achieved an IPO.

However, supply bottlenecks may persist. TrendForce storage analyst Bryan Ao warns that because chipmakers have taken a cautious approach to NAND capacity expansion in recent years, the number of flash factories is expected to fall short of market demand until at least 2027.

Deepening Partnerships, Improving Financials

As partners for more than 25 years, Kioxia and SanDisk announced that they will extend their joint venture agreement for their plant in Yokkaichi, central Japan, by five years to the end of 2034. According to the agreement, SanDisk will pay Kioxia $1.165 billion over four years through 2029. Smith said this is the first time such an arrangement has been made and is strong proof of Kioxia’s product leadership.

Boosted by this news and SanDisk’s optimistic outlook, Kioxia's share price surged over 11% on Friday. Kioxia was previously spun off from Toshiba, and after being sold to a Bain Capital-led consortium in 2018, it was renamed. Smith admitted that, although success now seems within easy reach, it comes as a result of the company’s tough journey through heavy debt, the unexpected passing of its former CEO, and the most severe industry downturn. “When you finally come out of the valley, it’s all the more wonderful,” Smith said.

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