SK Hynix Q1 performance accelerates again? Citi: Memory supply shortage exceeds expectations and continues, quarterly operating profit may double quarter-on-quarter
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The continued expansion of AI inference demand is driving the global storage market into a new structural upward cycle, with SK Hynix as the most direct beneficiary.
Citi analysts Peter Lee and Jayden Oh point out that AI inference demand is driving a surge in KV cache storage needs, leading to a sharp jump in average DRAM and NAND prices in the first quarter. Meanwhile, storage suppliers are extending quarterly contracts into long-term agreements of 3-5 years, which will significantly improve profit visibility, compress cyclical fluctuations, and bring structural improvements to SK Hynix’s earnings quality.
The report raises SK Hynix’s target price from 1.55 million KRW to 1.7 million KRW, maintains a “Buy” rating, and projects the company’s operating profit in Q1 2026 to reach 39.1 trillion KRW, up 104% quarter-on-quarter and 426% year-on-year, substantially exceeding the market consensus of 35.1 trillion KRW. Based on the current share price of 1.033 million KRW, the potential upside is about 64.6%.
First-quarter results likely to exceed expectations, pricing power increases substantially
In Q1 2026, SK Hynix’s average DRAM price is expected to rise 63% quarter-on-quarter, and average NAND price to rise 70% quarter-on-quarter, with the core driver coming from explosive growth in KV cache storage demand in AI inference scenarios.
Regarding shipments, first-quarter DRAM shipments are expected to fall about 6% quarter-on-quarter, NAND about 2%, but the significant increase in average prices is enough to offset seasonal declines, driving total revenue to about 52 trillion KRW, up about 58% quarter-on-quarter.
On the profit side, first-quarter DRAM business operating margin is expected to be 80%, NAND business 61%, and total operating margin about 75%, a significant improvement from 58% in Q4 2025.
Server DDR5 and HBM demand remain strong, concerns seen as excessive
Regarding market concerns that macro uncertainties and AI algorithm optimization (such as improved efficiency from models like DeepSeek) might suppress storage demand, Citi holds a contrary view.
Underlying demand for 64GB server DDR5 DRAM and HBM is steadily growing and has not waned due to recent market volatility. Evolution of AI algorithms such as TurboQuant will further drive demand for server DDR5 and HBM, rather than reduce it.
On pricing, the price of 64GB server DDR5 DRAM is expected to remain strong until the second half of 2026, and HBM demand will continue expanding. As AI agents become widely adopted, driving growth in token generation, CPU memory demand in AI training and inference scenarios will simultaneously be boosted.
Long-term agreements secure orders, supply shortages may persist beyond expectations
The duration of global storage supply shortages may exceed market expectations, and the spread of multi-year binding long-term agreements will further reinforce this trend.
Storage suppliers are upgrading their original quarterly contracts to long-term agreements of 3 to 5 years, though specific details remain to be confirmed. This shift means the storage market is evolving from a traditional commodity model to a highly customized, client-specific model—a trend comparable to the development path of the foundry industry, and valuation models for HBM business now refer to TSMC’s EV/EBITDA multiples for pricing.
Based on the above logic, Citi gives SK Hynix a target price of 1.7 million KRW.
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