An SK Hynix flag (right) and a South Korean national flag (left) fly in front of the company’s Bundang office in Seongnam, January 26, 2024.
Jung Yeon-je | Afp | Getty Images
London — Outstanding returns in memory-related stocks have helped fuel substantial gains in U.S. and South Korean stock markets in recent years, but market watchers warn that investors forget the market’s cyclicality at their own peril.
The memory industry has been experiencing a period of sustained growth since the launch of ChatGPT in December 2022, which sparked huge demand for high-bandwidth memory, or HBM.
Samsung And SK Hynix are among the largest producers of HBM chips, and their stock prices have soared 114% and 186%, respectively, since the start of the year. Based in the United States Micron technology And SanDisk each grew by 141% and 156% in 2026.
At the heart of the thesis behind the rise in memory stocks is the belief that the industry has shed its past cyclicality, whereby demand for storage fluctuates widely while supply remains largely fixed.
The leaders supported that AI has upended the industry’s boom-and-bust history, and that a structural shortage of supply means prices could remain high for years.
William de Gale, a portfolio manager at BlueBox Asset Management, told CNBC’s Europe Early Edition on Wednesday that the sector tends to have “huge ups and downs.”
“In the long run, it’s a pretty terrible industry,” he said.
“I suspect this is still the case whenever people make the argument that the memory cycle is over and that it is now a long-term value-creating industry – just before it all goes horribly wrong.”
New innovationsAlthough the memory chip With supply currently extremely limited, Alphabet’s Google on March 24 unveiled TurboQuant, a new compression method that it says could reduce the amount of memory required to run large language models by six times.
It is designed to make AI models more efficient, a major goal of leading labs.
Such developments could potentially reduce demand for AI memory chips, which are a critical component for training huge LLMs from companies like Google, OpenAI and Anthropic.
Deutsche Bank wrote in a Tuesday note that investors should “continue to prepare for continued AI-related disruption,” as evidenced by TurboQuant, which caused a sharp decline in the stock prices of the largest memory vendors upon its release.
Analysts add, however, that it “remains to be seen” whether the TurboQuant technique will create a structural shift in demand.
Jon Cunliffe, head of the investment office at wealth manager JM Finn, told CNBC there was scope to ramp up production significantly over the next three years, easing supply constraints, “especially if demand for AI grows at a more normal rate.”
“Current stock prices assume that prices will remain high for a long period of time, that companies will remain very disciplined not to overinvest, and that profit margins will remain much better than in the past,” he added.
“We would also like to highlight that the sector has experienced a high degree of dynamism in recent weeks, which has left it vulnerable to upheaval.”
While it is impossible to predict when memory supply might exceed demand, investors should exercise caution when investing in a sector with “historically average returns on capital that are priced to generate very high returns in the future,” according to Andrew Lapping, chief investment officer at Ranmore Fund Management.
“A leopard doesn’t change spots often,” Lapping said of the potential for structural change in the memory sector.
South Korean concentration riskSamsung and SK Hynix are responsible for sending South Korea’s Kospi to stratospheric heights in 2025 and 2026. Together, the stocks account for more than 50% of the entire index.
Steve Brice, global chief investment officer at Standard Chartered, told CNBC’s Squawk Box Asia on May 13 that he thought the peak of optimism around Korean stocks was “not very close.”
“I was in Korea last week and we were advising our clients to take profits on part of their portfolio and move them towards a globally diversified portfolio,” he said.
Nevertheless, some banks remain optimistic on the prospects of the two companies, with Nomura estimating that SK Hynix shares will reach 4 million won and Samsung Electronics will reach 590,000 won in the next 12 months.
This would imply a 20% rise in Samsung’s stock price and a doubling of SK Hynix, based on current prices.
—Arjun Kharpal of CNBC also contributed to this report.
