Citi believes the memory upcycle is not over, and AI-driven KV cache and QLC SSD demand will offset weakness on the consumer side.

Overview

This is a Citi industry research report on global semiconductors, especially Korean memory stocks. The core view is that the recent share price pullback mainly stems from market concerns over weakening China smartphone demand, rising NAND channel inventories, and a possible peak in the DRAM/NAND cycle, but Citi's inventory and demand analysis shows supply chain inventories remain at extremely low levels and AI demand continues to create supply-demand tightness.

Core views

The report believes the memory upcycle remains intact. NAND and DRAM inventories at suppliers, hyperscalers, and channels are all below normal levels, indicating that the market has not entered a clear oversupply phase. Although consumer NAND demand is being affected by weak China smartphone demand, CMX, KV cache, and QLC SSD, as AI data center-related demand, will become new incremental sources and may lead to continued DRAM/NAND undersupply.

Analysis framework

The report mainly supports its investment view through supply chain inventory weeks, comparisons with normal inventory levels, estimates of storage configuration demand for AI servers, the share of CMX NAND demand in global NAND demand, and the SOTP valuation frameworks for Samsung Electronics and SK Hynix.

Methodology notes

• Supply-Demand AnalysisComparison of Inventory Weeks with Normal Levels

  Use weeks of inventory at suppliers, hyperscalers, and channels to assess the tightness of DRAM/NAND supply and demand.

  The report compares current inventory with normal levels: NAND supplier inventory at 2.6 weeks versus a normal 5 weeks, hyperscaler inventory at 3 weeks versus a normal 7 weeks, and channel inventory at 5 weeks versus a normal 15 weeks; DRAM shows a similar low-inventory pattern.

• Valuation MethodSOTP

  Estimate the company's operating value by business segment and derive the target price.

  Samsung Electronics' target price is based on 2026E EBITDA and EV/EBITDA multiples for five major business segments; SK Hynix splits HBM from commodity/others and applies 7.2x and 4.2x EV/EBITDA, respectively.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Samsung Electronics (005930.KS)

  One of the core beneficiary names; Citi reiterates a Buy rating.

  Strengths

  It covers multiple businesses including Memory, Foundry, Display Panel, Mobile, and Consumer Electronics; low memory inventories and AI demand benefit its Memory business.

  Weaknesses

  HBM customer qualification progress, PC and NAND demand, handset business margins, and the KRW exchange rate could all affect earnings.

  Comparison

  Compared with SK Hynix, Samsung Electronics has more diversified businesses, and its valuation uses a five-segment SOTP.

  Risks

  Delays in HBM shipment approvals, weaker-than-expected PC sales, aggressive investment by competitors, intensified smartphone competition, and KRW appreciation.

• SK Hynix (000660.KS)

  One of the core beneficiary names; Citi reiterates a Buy rating.

  Strengths

  It has high exposure to the upcycle in HBM and high-end memory, and the report believes the next-generation memory market is evolving from traditional commoditization toward customer customization.

  Weaknesses

  Its business is relatively sensitive to DRAM/NAND conditions and the global consumer cycle.

  Comparison

  Compared with Samsung Electronics, SK Hynix's valuation framework places greater emphasis on the segment differences between HBM and commodity memory.

  Risks

  Downside in DRAM demand, weaker-than-forecast NAND demand, and global consumer weakness.

• DRAM/NAND Industry Chain

  The main industry asset and earnings driver studied in the report.

  Strengths

  Inventories at suppliers, customers, and channels are generally low, while AI data center demand provides new incremental support.

  Weaknesses

  Weak consumer electronics and China smartphone demand will still weigh on part of NAND demand.

  Comparison

  AI-related memory demand is stronger than traditional consumer demand, and QLC SSD and CMX may become more important incremental sources.

  Risks

  Demand recovery falls short of expectations, competitive capacity expansion causes pricing pressure, and changes in AI server configurations.

Key data

• NAND Supplier Inventory2.6 weeksBelow the normal level of 5 weeks.
• NAND Hyperscaler Inventory3.0 weeksBelow the normal level of 7 weeks.
• NAND Channel Inventory5 weeksBelow the normal level of 15 weeks.
• DRAM Supplier Inventory2.7 weeksBelow the normal level of 5 weeks.
• DRAM Hyperscaler Inventory2.5 weeksBelow the normal level of 7 weeks.
• DRAM Channel Inventory4 weeksBelow the normal level of 15 weeks.
• CMX NAND Demand Forecast34.6bn 8Gb Equiv. in 2026E, 115.2bn 8Gb Equiv. in 2027EEquivalent to about 2.8% and 9.3% of global NAND demand in 2026E, respectively.
• Samsung Electronics Target PriceW530,00012-month target price, based on SOTP and 2026E EBITDA.
• SK Hynix Target PriceW3,100,00012-month target price, based on SOTP and 2026E EBITDA.

Impact & implications

If the report's view proves correct, market concerns that the memory cycle has peaked may be excessive, and the pullback in Korean memory stocks could instead provide an opportunity for reassessment. Low inventories combined with growth in AI servers, KV cache, CMX, and QLC SSD demand may continue to support DRAM/NAND pricing and earnings leverage.

Risks

• China smartphone and consumer electronics demand continues to weaken, dragging down consumer NAND prices.
• DRAM or NAND demand comes in below Citi's forecasts, easing supply-demand tightness.
• Aggressive investment by competitors in memory semiconductors or foundry could pressure prices.
• If Samsung Electronics' HBM shipment approvals to key customers are delayed, target price realization could be affected.
• A sharp appreciation of the KRW could compress Samsung Electronics' earnings.
• Global consumer weakness could weigh on SK Hynix demand.

What to watch

• Whether DRAM/NAND supplier, hyperscaler, and channel inventories continue to stay low.
• Whether growth in AI agent usage continues to drive KV cache and CMX demand.
• The pace of QLC SSD adoption in near-GPU storage solutions.
• Changes in SSD configurations on AI server platforms such as Nvidia Vera Rubin.
• Samsung Electronics' HBM customer qualification and shipment progress.
• SK Hynix's HBM valuation multiples and the price trend of commodity memory.