Wall Street Debate: Storage Giants Valued So Low—Is That Right?
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Storage chip giants are achieving historic profits driven by a wave of AI demand, yet their stock valuations remain far lower than other leading AI chipmakers. This notable gap is sparking an intense debate on Wall Street over whether the storage industry has entered a "super cycle".
Samsung Electronics’ net profit is expected to grow 400% this year, and SK Hynix nearly 300%—both far outpacing TSMC’s roughly 50% growth. However, the forward P/E ratios of these two storage giants are less than 6, compared to nearly 20 for TSMC and as high as 22 for Nvidia. The stark contrast between profit and valuation lies at the heart of the controversy.
According to a Bloomberg report on April 22, bulls argue that AI demand for storage has spread from high-bandwidth memory to DRAM, flash, and other general-purpose products, with supply shortages and soaring prices coexisting, signaling a structural new paradigm for the storage industry. Bears, however, maintain that storage profits have historically fluctuated dramatically with the economic cycle. Lower valuations are a rational pricing for this pattern, and the market needs more evidence before attaching higher premiums.
Analysts note that SK Hynix will release its earnings report this Thursday, with Samsung to follow shortly after. The latest financial data from both companies may mark the next key juncture for this valuation debate.
Profits Soar, Valuations Remain "Stuck"
Storage stocks have already performed exceptionally well. Since the end of last August, Samsung shares have roughly doubled, SK Hynix has tripled, and TSMC rose about 77% in the same period.
However, the gap in valuation multiples remains huge. The forward P/E ratios for Samsung and SK Hynix are both under 6, while U.S. storage chipmaker Micron Technology Inc. and Japan’s Kioxia Holdings Corp. also have forward P/E ratios below 10. In contrast, TSMC trades at about 20, and Nvidia around 22.
In terms of absolute profit scale, storage giants are also not to be underestimated. Samsung’s net profit this year is expected to reach $151 billion, SK Hynix is projected at $115 billion—both exceeding TSMC’s projected $81 billion. Analysts believe that larger profits but lower valuations is the most appealing investment logic for bulls.
Bulls: AI Is Reshaping the Fundamentals of the Storage Industry
Investors supporting a revaluation of storage stocks believe the rise of AI is fundamentally changing the industry’s business model.
Dave Mazza, CEO of Roundhill Investments, said that storage is "now deeply integrated with the technological roadmap of AI accelerators, with co-design embedded directly within."
He further noted that storage companies are increasingly signing long-term contracts with hyperscale cloud providers, "this fundamentally alters the cyclical nature of the business."
Molly Pieroni, president of Texas-based Yacktman Asset Management, holds preferred shares of Samsung but doesn’t own Nvidia due to high valuations.
For Samsung, she stated that "even if the results are not stellar, they are enough to support the current valuation." Even if the stock price doubles again, "valuation would still be very attractive compared to other companies."
AI-driven strong demand has extended from high-bandwidth memory to broader DRAM and flash products, causing supply shortages and price surges, which further strengthens the bulls’ confidence in sustained demand.
Bears: The Curse of the Cycle Is Hard to Break
However, skeptics are not convinced.
Their key argument is: The storage industry’s profits have always been heavily dependent on macroeconomic cycles. Once demand slows, supply is often already ramped up, which triggers price crashes.
Jorry Noeddekaer, head of global emerging markets and Asia at Polar Capital in London, which manages over $40 billion in assets, acknowledges the industry is in "some kind of new paradigm" but makes it clear:
“To say storage will never again experience cyclical fluctuations—we do not believe that.”
His fund has reduced some storage positions during the recent rally, now viewing the risk-reward ratio as less attractive than in early cycles, and points out that TSMC offers "more structurally fundamental growth" and faces less competition.
Christine Phillpotts, emerging markets equity portfolio manager at Ariel Investments, is also cautious.
She says the crux of the debate is "whether the pace of supply expansion can match demand," noting that in previous cycles, when demand weakened, supply had already ramped up, "This is definitely a risk we are watching closely."
The Market Needs Time to "Believe"
Even relatively neutral observers believe it will take time for a revaluation of storage stocks.
Tom Tully, a portfolio manager at Aperture Investors in New York, says, "Looking at the history of the storage industry, profit cyclicality has been just too strong," and thinks "the market needs time to actually believe these returns can last."
Some investors believe that once the market sees substantial evidence that storage profit growth is more structural than cyclical, valuations will gradually catch up with other AI chip stocks.
Analysts believe that the upcoming earnings releases from SK Hynix and Samsung will be key to testing this logic—but to fully overturn the market's entrenched perception of the storage industry as 'commodities', it may take several more rounds of sustained data.
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