AI Storage Demand Strengthens Earnings Durability, Pullback Offers Opportunity to Add Positions

Overview

The report maintains an optimistic view on SK hynix and the memory industry. Revenue momentum from cloud service providers and AI model labs is strengthening, indicating that returns on AI capex are improving. Meanwhile, persistent HBM shortages, a higher mix of high-value server storage, and a recovery in traditional DRAM and NAND fundamentals are expected to extend the company's earnings upcycle. Considering that the current market requires a clearer capital allocation plan and stronger evidence of AI storage consumption, the report lowers the target valuation multiple from 8x to 7x and reduces the target price to ₩2,750,000.

Core views

The core views include: first, AI capex is not a short-term pulse, and EPS is expected to maintain an approximately 26% compound growth rate from FY26E to FY28E; second, long-term supply agreements are concentrated in high-value products such as server memory, SOCAMM-LPDDR, and enterprise SSDs, which is beneficial to product mix and ASP; third, HBM specification adjustments are more about content optimization than demand cuts. After extending the life of 8Hi products and improving output, the supply-demand gap is expected to narrow from 30% to 40% to 10% to 20%, but the shortage pattern should persist; fourth, weak 2Q26 pricing is expected to reverse in 3Q26, with HBM4 and server DRAM becoming the main drivers; fifth, AI-oriented NAND products, including HBF, SLC enterprise SSDs, and V10 375-layer 4D NAND, represent new growth catalysts.

Analysis framework

The report builds an earnings model by combining bottom-up assumptions for DRAM, HBM, and NAND shipments, ASPs, product mix, and capex, and compares it with consensus expectations. Valuation uses a P/E methodology based on next-12-month and FY26E to FY27E average EPS, while assessing risk-reward through industry supply-demand, long-term supply agreements, technology migration, competitive dynamics, and capital allocation scenarios.

Methodology notes

• Valuation methodsForward P/E Valuation

  Estimate target value using 7x FY26E to FY27E average EPS

  The target multiple is lowered from 8x to 7x to reflect a longer time needed for valuation normalization, higher requirements for capital allocation transparency, and rising market opportunity cost; the target price horizon is extended to June 2027.

• Earnings ForecastProduct-Level Volume-Price Model

  Derive revenue and profit based on DRAM, HBM, and NAND bit shipments, ASPs, product mix, and capacity

  The forecast upgrade mainly comes from improved DRAM and NAND ASPs in 2H26E, HBM supply-demand mismatch, more memory bit output, and faster technology migration.

• Industry AnalysisSupply-Demand and Cycle Analysis

  Assess the impact of AI demand, long-term supply agreements, and new supply on the duration of the memory cycle

  The report believes HBM adjustments are mainly product content optimization. Server application demand and long-term agreements help stabilize prices, while new supply from advanced nodes and slowing end demand are the main negative variables.

Asset mapping & comparison

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

• SK hynix (000660.KS)

  Core recommended name and a direct beneficiary of AI storage demand

  Strengths

  Leading HBM execution capability, high-quality server DRAM and enterprise SSD product mix, long-term supply agreements covering major customers, and strong earnings and free cash flow growth.

  Weaknesses

  The memory business is highly cyclical, and valuation recovery depends on further market confirmation of cycle duration, capital allocation, and AI storage consumption.

  Comparison

  The report expects 3Q26 server DRAM ASP to perform better quarter-on-quarter than peers, and enterprise SSDs to account for 70% to 80% of NAND sales, but the recent share price pullback from the high is larger than that of KOSPI and memory peers.

  Risks

  Slowing AI capex, weak consumer-end demand, declining memory ASPs, increased advanced-node supply from Chinese competitors, and obstacles to HBM4 or HBM4E mass production.

• HBM and AI Storage Supply Chain

  Main driver of SK hynix's medium-term earnings growth

  Strengths

  Demand remains strong and the supply-demand gap persists. FY26E to FY27E bit shipments are expected to grow rapidly, and product margins are high.

  Weaknesses

  Product specification and content adjustments may cause short-term expectation volatility, and ASP increases may be lower than extremely optimistic market forecasts.

  Comparison

  Compared with traditional DRAM and NAND, incremental HBM margin may be lower, but FY27E operating margin is still expected to exceed 70%.

  Risks

  AI customers reducing procurement, rapid narrowing of the supply-demand gap, and delays in product qualification or mass production.

• NAND and Enterprise SSD Business

  Source of product mix improvement and new technology catalysts

  Strengths

  High sales mix of enterprise SSDs, good progress in QLC, and HBF, SLC enterprise SSDs, and V10 375-layer 4D NAND expanding AI applications.

  Weaknesses

  Traditional NAND remains affected by consumer electronics demand and industry price cycles.

  Comparison

  The report believes SK hynix's enterprise NAND product mix leads some peers with slower mass production.

  Risks

  Deterioration in end demand and inventory, delays in new product mass production, and increased competitive supply.

Key data

• Target Price₩2,750,000Previously ₩3,000,000; target horizon is June 2027.
• Reference Share Price₩1,564,000As of August 4, 2026.
• Potential Upside to Target PriceApproximately 75.8%Calculated based on the target price relative to the reference share price.
• FY26E to FY28E EPS CAGRApproximately 26%Supports the view of multi-year earnings durability.
• FY26E Adjusted EPS₩366,143Up 15.8% from the previous forecast of ₩316,147.
• FY27E Adjusted EPS₩447,275Raised by approximately 3.1% from the previous forecast.
• HBM Bit Shipment GrowthFY26E approximately +30%, FY27E approximately +55%Year-on-year forecasts.
• FY27E HBM Blended ASPApproximately +35%Below some market optimistic expectations of 50% to 100%.
• FY27E HBM Operating MarginAbove 70%Expected to be higher than FY24 to FY25 levels.
• Long-Term Supply Agreement Customers10 major customersThe report estimates that more than half of the related volume is mainly composed of cloud service providers and AI storage customers.
• NAND Product MixEnterprise SSDs account for 70% to 80% of NAND salesReflects an industry-leading high-value product mix.
• Share Price PullbackDown 46% from the June 2026 highDuring the same period, KOSPI fell approximately 30%, and memory peers fell approximately 33%.

Impact & implications

If AI capex continues, HBM shortages persist, and the mix of server storage products increases, SK hynix's ASPs, margins, and cash flow may remain strong over the next several years, with room for its current below-4x next-12-month P/E to normalize to above 6x. Short-term share price recovery still requires validation from capital allocation and shareholder return plans, so the report views the recent pullback as an opportunity to gradually add positions rather than a certain event of immediate valuation re-rating.

Risks

• An unexpected slowdown in AI capex plans, weakening HBM and server storage demand.
• Weak consumer-end demand causing DRAM and NAND ASPs and margins to fall below expectations.
• Accelerated entry of advanced-node memory supply from Chinese competitors into the market.
• Problems with HBM4 or HBM4E production, yield, or customer qualification.
• Details of long-term supply agreements are restricted by confidentiality agreements, creating uncertainty around price adjustment clauses and actual enforceability.
• Capital allocation and shareholder return plans falling short of expectations, delaying valuation multiple normalization.

What to watch

• 3Q26 and 4Q26 server DRAM, HBM, and NAND ASP trends.
• HBM4 contribution, 8Hi product duration, and the actual extent of narrowing in the supply-demand gap.
• The duration, customer mix, minimum prices, take-or-pay terms, prepayments, and price increase clauses of long-term supply agreements.
• Capital allocation and shareholder return plans announced by the company before the end of 2026, especially potential share repurchases.
• Product roadmaps and mass production progress for HBF, SLC enterprise SSDs, and V10 375-layer 4D NAND.
• Whether revenue growth from AI cloud service providers and model labs can continue to validate returns on capex.
• The impact of Chinese advanced-node memory supply and consumer electronics demand on industry pricing.