AI demand still outstrips supply, and the memory price upcycle may continue, with the peak possibly arriving in 1HCY27
AI summary card
AI demand still outstrips supply, and the memory price upcycle may continue, with the peak possibly arriving in 1HCY27
Bernstein believes 2QCY26 memory contract prices will be stronger than expected, with AI demand continuing to support HBM, logic silicon, and CoWoS, while PCs and smartphones are weighed down by high memory prices and stock ratings show clear divergence.
- AI demand still exceeds supply; a SK hynix base-die issue may slightly delay Rubin, but Blackwell is expected to fill the gap. Even if Rubin Ultra packaging configurations change, it is unlikely to materially alter CSP demand for compute, HBM, logic silicon, and CoWoS.
- 1QCY26 DRAM contract prices are expected to rise 85%-100% QoQ, 2QCY26 commodity DRAM contract prices may rise another about 60% QoQ, and NAND may rise 70%-75%, above current forecasts, especially benefiting NAND.
- The report judges that memory prices may still edge up modestly in 2HCY26, but as consumer and enterprise demand destruction emerges, prices are likely to peak in 1HCY27 before declining.
- War has not yet caused chip supply disruptions; helium risk is low, and if energy supply becomes tight, chip fabs may also receive priority allocation and pass through costs via pricing power.
- The authors maintain Outperform on Samsung, SK hynix, Micron, TSMC, and MediaTek; Underperform on KIOXIA and UMC; and Market-Perform on Vanguard and Novatek.
Report interpretation
Overview
This is Bernstein's 1Q26 earnings preview for Asia semiconductors and the global memory sector. The report centers on AI demand, war-related disruption, rising memory prices, and pressure on downstream consumer electronics. The authors believe AI-related demand still far exceeds supply, supporting HBM, DRAM, NAND, advanced packaging, and foundry capacity; however, PCs and smartphones are facing heavier cost pressure from the sharp rise in memory prices, and the market may be overestimating expectations for price hikes in mature-node processes. The overall investment conclusion is to favor AI and memory beneficiaries while avoiding companies with structural weakness or valuations that already reflect too much pricing optimism.
Core views
First, AI demand remains the main driver of semiconductor supply-demand tightness, and a potential small Rubin delay and packaging adjustment do not change cloud vendors' compute demand. Second, memory contract prices may continue to surprise to the upside in 2QCY26, with DRAM and NAND shortages still evident, but the price peak may arrive in 1HCY27. Third, high memory prices are suppressing PC and smartphone demand; the report expects this year's PC and smartphone shipments to fall 13% and 15%, respectively, with further downside risk. Fourth, TSMC's results should be strong but in line with expectations, and AI chips can absorb capacity freed up by mobile chips; MediaTek's TPU project has a minor design issue but it does not affect 2026 production plans. Fifth, expectations for price increases at mature-node foundries such as UMC and Vanguard may be unrealistic, while Novatek presents a more balanced risk-reward profile amid cost pressure and about a 6% dividend yield.
Analysis framework
The report forms its views through industry supply-demand checks, comparisons of memory spot and contract prices, revisions to company models, valuation multiples, consensus expectation comparisons, and updates to ratings and target prices. For the memory sector, the authors focus on the gap between DRAM spot and contract prices, early 2QCY26 contract negotiations, the binding power of long-term agreements, and demand destruction on the consumer side. For individual stocks, the report evaluates target prices and ratings using P/E, P/B, BVPS, EPS, depreciation and amortization, gross margin, and revenue forecast revisions.
Methodology notes
Memory price cycle
By examining DRAM/NAND spot prices, contract prices, supply-demand checks, and customer early buying, the report judges the upside potential and timing of the price peak.
P/E and P/B target price
Novatek uses a 14x target P/E, while UMC and Vanguard use target P/B and BVPS revisions to derive target prices.
Revenue, gross margin, depreciation and amortization, and EPS/BVPS adjustments
The report revises 2026-2028 forecasts based on utilization, ASP, inflation, depreciation and amortization, and changes in end-market demand.
Outperform, Market-Perform, Underperform
Bernstein's stock ratings are based on expected relative performance versus the corresponding market index over the next 12 months; Outperform means more than 15 percentage points of outperformance, Market-Perform means within plus or minus 15 percentage points, and Underperform means more than 15 percentage points of underperformance.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Samsung ElectronicsBeneficiary of memory and AI demand
- Strengths
- Strong AI demand and an extended memory shortage; valuation is no longer expensive after recent profit taking and earnings upgrades.
- Weaknesses
- The long-term price peak may roll over after 1HCY27, and earnings volatility remains high.
- Comparison
- Along with SK hynix and Micron, it is one of the memory stocks the report prefers.
- Risks
- LTAs may not be sufficient to sustain peak pricing for long, and consumer demand destruction could limit further price increases.
- SK hynixBeneficiary of HBM and DRAM shortages
- Strengths
- AI demand is driving HBM and high-end memory demand, and the report maintains Outperform.
- Weaknesses
- A base-die issue may slightly delay Rubin.
- Comparison
- Blackwell may fill the gap from any Rubin delay, and overall AI demand still exceeds supply.
- Risks
- Peak-cycle pricing, weakening customer demand, and supply-chain execution issues.
- MicronBeneficiary of the global memory cycle
- Strengths
- Micron's FQ2 results support the view that DRAM contract prices can rise sharply, and the report maintains Outperform.
- Weaknesses
- Cyclical stocks are highly volatile, and macro uncertainty may prompt investors to take profits early.
- Comparison
- Shares the memory shortage tailwind with Samsung and SK hynix.
- Risks
- Prices may peak and pull back after 1HCY27.
- KIOXIANAND-related but with higher structural concerns
- Strengths
- In the near term, NAND prices may rise more than expected in 2QCY26.
- Weaknesses
- The report has long-term concerns about the NAND market structure and rates it Underperform.
- Comparison
- It is clearly more cautious on KIOXIA than on Samsung, SK hynix, and Micron.
- Risks
- Structural competition in NAND, price-cycle reversal, and insufficient long-term earnings quality.
- TSMCBeneficiary of advanced foundry and AI-chip capacity
- Strengths
- AI chips can easily absorb capacity freed up by mobile chips such as QCOM and MediaTek, and energy costs are a low share of revenue and can be passed through.
- Weaknesses
- Although results are strong, they are broadly in line with expectations, and war may cause the company to keep, rather than raise, capex guidance this quarter.
- Comparison
- Compared with mature-node foundries, TSMC benefits more directly from AI demand.
- Risks
- Rising energy costs, geopolitics, and uncertainty around the capex pace.
- MediaTekSmartphone SoC and TPU/ASIC projects
- Strengths
- Minor TPU project issues have been resolved quickly, the 2026 US$2B ASIC revenue forecast is unchanged, and the trend of deeper cooperation with Google remains intact.
- Weaknesses
- The smartphone business is weighed down by high memory prices and weak end-market demand.
- Comparison
- Broadcom's disclosed ASIC contract looks more like overall TPU market expansion rather than share loss for MediaTek.
- Risks
- If the smartphone business lowers guidance, sentiment may be pressured in the short term; however, the report believes the pullback has largely priced in the risk.
- UMCMature-node foundry
- Strengths
- Specialty process and 22nm platform are expected to keep growing in 2026, and ROE expectations remain at 10%-15%.
- Weaknesses
- Pricing efforts may fail to meet market expectations, while depreciation from the new Singapore fab and inflation weigh on gross margin and operating margin.
- Comparison
- Compared with Nexchip and Powerchip, UMC's underutilization limits its success rate in raising prices.
- Risks
- Consumer demand destruction, ASP and utilization below expectations, rising D&A, and a target price that implies about 24% downside.
- VanguardMature-node foundry
- Strengths
- 8-inch utilization and VSMC loading expectations are improving, and the target price was raised to NT$94.
- Weaknesses
- The recent rally driven by pricing expectations may have over-discounted the positives, and the report sees limited success in a second price-increase attempt.
- Comparison
- Like UMC, improved supply-demand conditions at mature nodes are not enough to fully support aggressive pricing expectations.
- Risks
- 2027-2028 revenue is 9%-14% below consensus, gross margin is below consensus, and there is downside risk in the near term.
- NovatekDisplay driver IC and SoC
- Strengths
- Higher Apple PC share, a new Korean OLED customer, and about a 6% dividend yield provide a buffer, while cost pass-through ability is better than expected.
- Weaknesses
- Smartphone demand destruction and rising memory prices weigh on 1Q26 guidance and subsequent demand.
- Comparison
- The risk-reward profile is relatively balanced, hence the Market-Perform rating.
- Risks
- Low-end smartphones remain under pressure, 2026 revenue may decline slightly, and the target price implies about 6% downside.
Key data
- 1QCY26 DRAM contract price expectationUp 85%-100% QoQSupported by Micron FQ2 results and Samsung's preliminary 1Q results.
- Early 2QCY26 commodity DRAM contract negotiationsAbout 60% QoQ increaseAbove current 2QCY26 ASP growth forecasts.
- Early 2QCY26 NAND price negotiationsAbout 70%-75% QoQ increaseThe report believes the NAND upside surprise is especially pronounced.
- Consumer applications' share of DRAM revenueAbout 40%Consumer customers lack long-term agreements, increasing price and earnings volatility risk.
- PC/smartphone shipment forecastDown 13%/15% this year, respectivelyHigh memory prices and demand destruction are the main pressures, with further downside risk.
- MediaTek ASIC revenue forecastUS$2B in 2026Minor issues in the TPU project were quickly addressed, and the production plan has not materially changed.
- UMC depreciation and amortization forecastUp 11.5% YoY in 2026, flat in 2027, down 6% in 2028Depreciation from the new Singapore fab is a source of margin pressure.
- UMC target priceNT$47Target P/B was raised to 1.5x, but it still implies about 24% downside.
- Vanguard target priceNT$94Raised from NT$90, based on a 3x target P/B and Q5-Q8 BVPS.
- Novatek target price and dividendNT$370; about 6% dividend yieldThe target price implies about 6% downside, but the dividend yield can provide a buffer.
Impact & implications
The investment implication is to continue favoring the direct beneficiaries of AI demand and memory shortages, such as Samsung, SK hynix, Micron, TSMC, and MediaTek; meanwhile, investors should be alert to higher price and earnings volatility as the memory cycle enters a later stage. For mature-node and consumer electronics chains, market expectations for pricing power and demand resilience may be too high, and the risk-reward for UMC, Vanguard, and Novatek is more constrained by end-demand, utilization, inflation, and valuation.
Risks
- A faster-than-expected rise in memory prices could accelerate demand destruction among PCs, smartphones, and enterprise customers.
- Price visibility beyond 2HCY26 is low; if the memory shortage does not persist, prices and earnings may roll over after 1HCY27.
- LTAs are more binding than before, but may still not be enough to sustain peak prices, and consumer customer coverage is limited.
- If the war drags on, energy supply and costs could become a risk for semiconductor manufacturers.
- Expectations for price increases at mature nodes may fail to materialize, and UMC and Vanguard shares may face pullbacks.
- Macro uncertainty may lead investors to take profits before memory prices actually peak.
What to watch
- Whether final 2QCY26 DRAM and NAND contract prices achieve the expected QoQ increases of about 60% and 70%-75%, respectively.
- Progress on Rubin, Blackwell, and Rubin Ultra-related supply chains, as well as changes in demand for HBM, logic silicon, and CoWoS.
- The price floor, prepayment terms, and customer coverage of memory long-term agreements.
- Actual shipments and order cuts for PCs and smartphones under high memory prices.
- Whether TSMC maintains capex guidance and whether AI chips continue to absorb capacity freed up by mobile chips.
- MediaTek's TPU mass-production timing, progress in cooperation with Google, and the 2026 US$2B ASIC revenue target.
- The actual success rate of price increases at UMC and Vanguard, utilization trends, and gross margin trends.
- Novatek's OLED share gains, contribution from new Korean customers, and the buffering effect of dividends against downside in the share price.