Second-quarter storage price increases "far exceeded expectations," Nomura: "Long-term bull market in storage" far surpasses the "short-term rise in oil prices."

As the market closely watches the situation in the Middle East, Nomura states that the “storage long-term bull market” will far surpass the “short-term rise in oil prices.”

According to Zhui Feng Trading Desk, on March 23, Nomura Securities released a global market research report pointing out that the bull market cycle in the storage industry will last much longer and be more sustainable than the oil price surge caused by geopolitical factors. The key variable is the continued expansion of AI demand and the lagging supply expansion.

Nomura predicts that the increase in storage prices in the second quarter of 2026 will “significantly exceed previous expectations,” with commodity DRAM and NAND prices rising by 51% and 50% quarter-on-quarter, respectively. This figure represents a “quantum leap” compared to their previous forecasts of 6% and 20%.

Based on strong expectations for price trends, Nomura has raised SK Hynix’s target price by 24%, from 1.56 million KRW to 1.93 million KRW, and reiterated its “buy” rating. Nomura believes the recent pullback caused by developments in the Middle East presents an excellent buying opportunity for investors.

AI Demand Reshapes Industry Logic

Nomura analyzes in the report why the storage cycle can “cross” macroeconomic fluctuations. One main logic is that AI capital expenditure drives the “long-term bull market” for storage.

Nomura believes that, fueled by the AI boom, investment cycles by large tech companies will become the dominant force in the AI industry. The strong growth in demand brought by tech giants’ AI capital expenditure means its cycle “is longer and more sustainable than the short-term oil price surge cycle.” In contrast, demand associated with consumer devices (PCs and smartphones), which is sensitive to the macro environment, has dropped sharply—from 60% ten years ago to less than 30% today. This provides a solid foundation for the long-term stability of the storage industry.

Nomura describes the trend of AI development as a “black hole” for storage demand. As AI demand shifts from simple text chatbots to enterprise-level agents, from text-driven to multi-modal, memory demand is being segmented: from centering on HBM/LPDDR to DDR for RAG, and next-generation SSDs for larger context processing.

“Long-term Agreements” Enhance Business Stability

Nomura believes another highlight for the storage industry is the ongoing transformation in business models. To address persistent supply shortages, storage suppliers and customers are actively shifting toward long-term agreements (LTAs).

Nomura writes in the report: “Given that supply shortages may persist for a long time, we believe storage manufacturers are seeking sustainable long-term agreements (LTAs) instead of simply raising prices. Clients are also proactively requesting LTAs with suppliers to meet the continuously rising demand for AI memory.”

It is reported that these agreements include clauses such as prepayments (as deposits), capacity guarantees, and pricing schemes. Nomura believes that although it is still uncertain if LTAs can fully withstand cyclical changes, the storage industry is evolving from “spot-driven” to “long-term planning-driven,” which will significantly enhance profit stability.

Slow Supply-side Growth: Shortage May Extend to 2028

On the supply side, Nomura’s conclusion is relatively pessimistic. The report stresses that although demand is surging, supply growth will be insufficient at least until early 2028.

Nomura emphasizes that storage (especially HBM for complex inference and training tasks) remains a key bottleneck for AI. The report states: “It still takes physical time to ramp up memory supply to meet high demand... Supply growth will be insufficient to meet soaring storage demand at least until early 2028.”

Even industry giants like SK Hynix have strong cash flow, but limited by expansion cycles and technological bottlenecks, it is difficult to significantly expand capacity in the short term.

Nomura forecasts SK Hynix’s operating profit for 2026 and 2027 will be raised by 36% and 37% respectively, reaching 256 trillion KRW and 365 trillion KRW. Regarding investor concerns about cash returns, Nomura expects SK Hynix’s free cash flow (FCF) yield for fiscal year 2026 to reach 19%, offering considerable valuation appeal.

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