This time, it’s truly different! Nomura: Embrace the new AI normal; Samsung and SK Hynix valuations should be compared to TSMC.

AI-driven memory demand is entering an exponential expansion phase, while supply growth is far behind. Nomura Securities believes that this memory super cycle is completely different from any in history—structural supply-demand imbalance, long-term agreements (LTA) securing profit visibility, and an AI self-reinforcing investment cycle are fundamentally reshaping the valuation logic of the memory industry.

On May 15, Nomura significantly raised the target prices for Samsung Electronics and SK Hynix, from 340,000 won and 2,340,000 won to 590,000 won and 4,000,000 won respectively, both maintaining a buy rating, with implied upside of over 118%.

Nomura believes that the current roughly 6 times 12-month forward P/E for both companies severely underestimates the sustainability and stability of their earnings, and their risk premium should align more closely with TSMC, rather than maintaining the historically high discount of a cyclical industry.

The core of this revaluation logic is: The explosive growth in AI inference workloads is driving KV cache memory demand to expand multiplicatively. Nomura estimates that memory demand could grow thousands-fold in the next five years, while industry supply growth over the same period is only about five to six times. The structural widening of the supply-demand gap, combined with increasingly binding long-term supply agreements, means memory manufacturers will have unprecedented sustainability in high profitability.

AI Inference Boom, Memory Demand Enters Exponential Expansion

Nomura points out that since the release of ChatGPT in December 2022, the memory industry has entered a structurally growing phase. As AI applications shift from training to inference, and with the rapid proliferation of Retrieval-Augmented Generation (RAG) and Agentic AI, memory demand is experiencing a qualitative leap.

Nomura’s core judgment is: KV cache memory demand in AI inference scenarios is a product function of many variables, including user scale, usage duration, task complexity, and token consumption. For example, a simple Q&A might require only about 30 output tokens, while generating a one-hour video requires about 100 million output tokens. With the rise of Agentic AI, per user token consumption is climbing exponentially.

Nomura estimates that memory demand may increase thousands-fold over the next five years, while industry supply growth is constrained by capacity expansion cycles and will likely only achieve 5 to 6 times growth (about 30% CAGR). This means a structural supply shortage will persist long-term and cannot fundamentally be reversed by software optimization or architectural changes.

From the perspective of data center capital expenditure, Nomura expects global data center capex to grow from $1.16 trillion in 2025 to $6.13 trillion in 2030, with memory's share of data center capex rising from 9% in 2025 to 23% in 2030.

LTA Secures Profits, “Cyclical Stock” Logic Is Collapsing

Nomura believes that investors' traditional concerns about the memory industry—that LTAs may not fundamentally differ from historically failed LTA structures—are being dispelled by reality.

The structure of current LTAs is significantly different from the past: minimum contract terms of 3 to 5 years, advance payment arrangements, and commitments to support capex make contract cancellations much harder. More importantly, Nomura believes that customer demand for HBM and high-performance memory now exceeds industry’s medium-to-long-term supply capabilities, which means memory manufacturers’ stable earnings outlook is increasingly less dependent on LTAs themselves and is instead supported by structurally tight demand.

Based on this, Nomura expects Samsung Electronics and SK Hynix to achieve about 30% annual revenue and profit growth over the next 3 to 5 years, with profits in 2026 rising 7 to 8 times. This growth trajectory closely mirrors TSMC’s roughly 30% CAGR from 2025 to 2028, while TSMC’s forward P/E is currently about 20x.

Nomura clearly points out that Samsung and Hynix’s current forward P/E of about 6x implies a risk premium (about 19% for Samsung, 24% for Hynix) much higher than TSMC’s roughly 6%, and this gap is no longer reasonable. As market confidence grows and Korea may be included in the MSCI Developed Market Index in June 2026, Nomura expects the valuation discount for these two companies to gradually narrow.

Samsung: Target Price Raised Sharply to 590,000 Won, Implied Upside 118%

Nomura raised Samsung Electronics’ target price from 340,000 won to 590,000 won, increased the valuation method from 3.0x book value to 5.0x, corresponding to a 12-month forward net asset value per share of 117,669 won. The target discount rate was lowered from 17% to 10%, but still remains way above TSMC’s roughly 6%.

On earnings forecasts, Nomura expects Samsung’s operating profits in 2026–2028 to be 30.7 trillion, 43.2 trillion, and 51.1 trillion won, with year-on-year growth rates of 604%, 41%, and 18%, respectively. Memory business is the key driver, with operating profit margins for DRAM and NAND seen remaining around 71% and 63%. HBM profitability is expected to gradually converge toward bulk DRAM levels by 2027.

Nomura also points out that profit improvement in Samsung’s foundry business will be limited: over 30% of 2026 income will be used for bonuses, and the operating cost of U.S. wafer fabs is about 50% higher than Samsung’s home base in Korea, so fixed cost pressure will remain.

In shareholder returns, Nomura expects Samsung to return 50% of free cash flow to shareholders, with free cash flow yields of 13% and 20% in 2026 and 2027, respectively.

SK Hynix: Target Price Raised to 4,000,000 Won, Pure Memory Premium Emerges

Nomura raised SK Hynix’s target price from 2,340,000 won to 4,000,000 won, target book value multiple from 3.5x to 6.0x, corresponding to a 12-month forward net asset value per share of 673,248 won, with implied upside of about 120%.

Nomura expects Hynix’s operating profit in 2026–2028 to be 28.1 trillion, 39.4 trillion, and 48.0 trillion won, with YoY growth rates of 496%, 40%, and 22%. Hynix’s ROE is significantly higher than Samsung, expected to reach 100%, 73%, and 54% from 2026–2028, mainly benefiting from its high financial leverage and pure memory business attributes.

In the HBM field, Nomura expects Hynix’s HBM ASP to rise from about $12.9/GB in 2026 to about $20.9/GB in 2027, and HBM operating profit margin to rise from 63% in 2026 to 72% in 2027, converging toward bulk DRAM levels.

Nomura also notes that with Hynix’s cash balance expected to reach about 100 trillion won in the first half of 2026, the company may actively pursue shareholder return policies and broaden its investor base by listing ADRs in the U.S.

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The above content is from Wind Chaser Trading Desk.

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