Memory Prices Strengthen More Than Expected, While SK Hynix's Massive Buyback Highlights Capital Discipline and Shareholder Returns

Overview

This week's report focuses on three themes: the implications of SK Hynix's massive buyback for capital allocation in the memory industry, the latest changes in DRAM and NAND pricing and demand data, and key areas of focus for the online Korea technology tour from August 24 to 28. BofA's overall assessment is positive, as neither prices nor orders indicate downside risk to its third-quarter ASP assumptions, while more proactive buybacks and dividends by memory manufacturers should improve shareholder returns.

Core views

First, SK Hynix announced a W40tn share buyback to be completed by November 2026 and raised its shareholder return ratio to more than 50% of free cash flow, versus exactly 50% previously. The report believes this has three positive implications for the memory industry: first, companies will return more excess cash to shareholders rather than irrationally increasing capital expenditure; second, the buyback should help SK Hynix strengthen its ownership structure and create conditions for a potential future ADR issuance; and third, even after the massive buyback, SK Hynix's 2026 cash dividend could still reach 5 to 10 times its long-term historical average, indicating that the company retains sufficient cash to pay a record year-end dividend. According to the report's estimates, 50% of SK Hynix's 2026 free cash flow could reach W85tn, compared with a current market capitalization of approximately W1,200tn, sufficient to support a high-single-digit shareholder return yield. Samsung Electronics likewise allocates 50% of free cash flow to dividends and buybacks, indicating that Korean memory manufacturers no longer use all operating cash flow solely for capacity expansion. Second, DRAM spot prices have strengthened for more than two consecutive months. Despite the traditional off-season and an already high price base in the first half, most products, including 16Gb DDR5 and 8Gb DDR4, still rose by low-single-digit percentages this week. The report believes spot performance points to an approximately 30% QoQ increase in the third quarter. General-purpose DDR5 contract prices are currently up approximately 20% to 25% QoQ in August, not yet reaching 30%, but if prices continue rising in September, the third-quarter average selling price could increase by more than 30%. Third-quarter price changes under long-term agreements range widely from 0% to 30%, but BofA's analysis indicates that most agreements are near or above 20%. NAND spot prices have also risen during the quarter by approximately 20%. Although this is less than DRAM, it already exceeds BofA's current forecast of less than 20%. The report therefore sees no downside risk to its global third-quarter blended ASP assumptions, comprising 23% QoQ growth for DRAM and 15% QoQ growth for NAND. Long-term price comparisons further demonstrate the extent of supply tightness. After briefly weakening in April and May 2026, DRAM prices resumed their rise from June through August. The spot price of 16Gb DDR5 is approximately US$53, a record high, while some DDR4 products are also far above the prior cycle peak of approximately US$10 in October 2017. The spot price of 8Gb DDR4 reached a record high of approximately US$43 in July and remained broadly flat in August. DDR4 supply shortages have also pushed contract prices for both 16Gb DDR4 and DDR5 to approximately US$35 to US$40, eliminating the DDR5 premium. The report attributes this high-price cycle to the reallocation of capacity toward HBM and server DRAM, along with continued DDR4 supply reductions by major manufacturers. Prices for server 64GB memory modules have also reached record highs, at approximately US$1,480 for DDR5 and US$1,300 for DDR4. For NAND, after remaining broadly flat or declining slightly in the second quarter and July, the spot price of 512Gb wafers rebounded significantly in the first half of August. It has risen by more than 50% year to date and is approaching eight times its February 2025 low. Its contract price is approximately US$26, about 10 times the February 2025 bottom of US$2.5. Prices rose by 40% to 60% each month from October to December 2025 and by 20% to 30% each month from January to March 2026, before monthly gains slowed to 1% to 5% from April through August. Although PC client SSD prices corrected somewhat in August, they remain approximately double their levels at the end of 2025, compared with an increase of only approximately 35% to 40% for full-year 2025. Demand and import data provide cross-validation for the pricing assessment. BofA's survey indicates that module manufacturers and OEMs have recently increased memory chip orders, while related companies expect to launch smartphone and PC products in September and the fourth quarter, potentially raising retail prices by more than 10% YoY. China's integrated circuit imports reached US$64bn in July, up 71% YoY, but import volume rose only 9% to 60 billion units, indicating that higher prices were an important driver of the increase in import value. Memory chip imports have increased for 10 consecutive quarters, with their value reaching a record US$35bn in July, representing approximately 54% of total integrated circuit import value and an increase of approximately 200% YoY. Import volume was 7.5 billion units, up 63% YoY. Based on this, the report estimates that the average selling price of memory chips rose by more than 100% YoY. During the same period, China's semiconductor equipment imports totaled US$3.4bn, the highest since January and up 3% YoY. The report also previews the online Korea technology tour to be held from August 24 to 28, with meetings planned with senior executives and investor relations teams from 13 companies. The tour covers DRAM, HBM, NAND, deposition and laser annealing equipment, FC-BGA and PCB substrates, advanced-packaging OSAT, and AI and cloud services. Key topics include the memory supercycle, ASPs for the third and fourth quarters of 2026 and for 2027, pricing and volumes under long-term agreements, buyback and dividend arrangements, new fab construction and mass-production timelines, capital expenditure, 1c-node DRAM, 300-plus-layer NAND, and advanced packaging technologies such as TCB and hybrid bonding. Finally, the valuation section shows that SK Hynix rebounded significantly after announcing its buyback on August 20, while Samsung Electronics also rose 9% as the market expected a large dividend in addition to its buyback. Most DRAM stocks still trade at only 4x to 8x valuations. BofA assigns SK Hynix a Buy rating and a W3,000,000 price target, based on 8x expected 2027-28 EPS. The 8x multiple is the midpoint between the 4x to 5x cyclical peak valuation during the 2017-18 cloud computing boom and the long-term low-teens average valuation, and is slightly below the reasonable 9x to 11x valuation of global DRAM peers to reflect elevated share-price volatility in the first half of 2026 and July. Because the market may be concerned about a downcycle in 2027 or 2028 following strong earnings in 2025-26, the report uses 2027-28 as the valuation period and excludes 2026. BofA believes the company's proven earnings capacity in 2026, expected record earnings in 2027-28, global leadership, and high margins can ultimately support a rerating above 8x.

Analysis framework

The report first analyzes the relationship among buybacks, dividends, and capital expenditure based on the use of free cash flow. It then combines spot prices, contract prices, long-term agreements, channel surveys, and Chinese import values and volumes to validate supply-demand conditions and ASP trends. It subsequently determines the target valuation for SK Hynix's 2027-28 earnings through comparisons with historical cycles and global DRAM peer P/E ratios, and lists the operating variables to be validated during the online corporate meetings.

Methodology notes

• Company Fundamentals and Financial FrameworkFree cash flow analysis

  Measuring shareholder return capacity through free cash flow

  The report links the amounts used by SK Hynix and Samsung Electronics for buybacks and dividends to free cash flow to assess whether high shareholder returns would constrain normal operations and capital expenditure.

• Industry/Sector Analysis FrameworkSupply-demand framework

  Memory chip supply-demand and capacity reallocation analysis

  The report explains stronger DRAM and NAND prices through the shift of capacity toward HBM and server DRAM, reductions in DDR4 production, and increased orders from module manufacturers and OEMs.

• Industry/Sector Analysis FrameworkVolume-price decomposition

  Decomposition of import value and import volume

  China's integrated circuit import value rose 71% YoY while volume increased only 9%, and memory import value rose approximately 200% while volume increased 63%. Based on this, the report concludes that average selling prices increased significantly.

• Valuation MethodPE/PEG valuation

  Target P/E method using cross-cycle and peer comparisons

  SK Hynix's W3,000,000 price target applies an 8x P/E multiple to expected 2027-28 EPS. The multiple references the prior cycle's peak, the long-term historical average, and global DRAM peer valuations, while incorporating a discount for share-price volatility.

Asset mapping & comparison

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

• SK Hynix (HXSCF, SKHY)

  The W40tn buyback, higher payout ratio, and stronger memory prices are the report's main positive drivers.

  Strengths

  Earnings capacity in 2026 has been validated, the report expects record earnings in 2027-28, and it emphasizes the company's global leadership and high margins.

  Weaknesses

  Share-price volatility was elevated in the first half of 2026 and July, so the target P/E multiple is slightly below that of global DRAM peers.

  Comparison

  The target P/E multiple is 8x, below the reasonable 9x to 11x valuation of global DRAM peers. Shareholder returns are likewise based on approximately 50% of free cash flow, similar to Samsung Electronics' policy.

  Risks

  Weaker-than-expected chip demand or an industry downcycle in 2027 or 2028.

• Samsung Electronics

  It likewise allocates 50% of free cash flow to dividends and buybacks, reflecting an industry trend among Korean memory manufacturers toward higher shareholder returns and disciplined capital expenditure.

  Strengths

  The report notes that it retains both the capacity and the expected intention to pay a large dividend in addition to its buyback.

  Comparison

  Both Samsung Electronics and SK Hynix use a shareholder return framework based on approximately 50% of free cash flow.

Key data

• SK Hynix Share BuybackW40tnPlanned for completion by November 2026
• SK Hynix Shareholder Return RatioMore than 50% of 2026 free cash flowPreviously exactly 50%
• 50% of SK Hynix's 2026 Free Cash FlowW85tnCompared in the report with a current market capitalization of approximately W1,200tn
• Global Third-Quarter Blended DRAM ASP Assumption+23% QoQThe report currently sees no downside risk
• Global Third-Quarter Blended NAND ASP Assumption+15% QoQNAND spot performance has already exceeded the report's current forecast
• 16Gb DDR5 Spot PriceApproximately US$53Reached a record high
• 8Gb DDR4 Spot PriceApproximately US$43Reached a record high in July and remained broadly flat in August
• Server 64GB Memory Module PricesDDR5 US$1,480; DDR4 US$1,300Both are at record highs
• 512Gb NAND Wafer Contract PriceApproximately US$26Approximately 10 times the February 2025 low of US$2.5
• China's July Integrated Circuit ImportsUS$64bn; 60 billion unitsImport value increased 71% YoY, while import volume increased 9% YoY
• China's July Memory Chip ImportsUS$35bn; 7.5 billion unitsImport value reached a record and rose approximately 200% YoY, import volume increased 63% YoY, and memory chips accounted for approximately 54% of integrated circuit import value
• SK Hynix Price TargetW3,000,000Based on 8x expected 2027-28 EPS

Impact & implications

The report believes that higher buyback and dividend ratios indicate that memory manufacturers are shifting capital allocation away from capacity expansion alone toward a balance that includes shareholder returns, helping restrain irrational capital expenditure. Meanwhile, spot prices, contract prices, orders, and import data collectively show that memory prices are stronger than expected, prompting BofA to maintain its third-quarter blended ASP assumptions for DRAM and NAND. For SK Hynix, earnings resilience, industry leadership, and high margins provide the basis for a medium-term valuation rerating.

Risks

• Weaker-than-expected chip demand is the primary downside risk to SK Hynix's valuation.
• Following strong earnings in 2025-26, the industry could enter a downcycle in 2027 or 2028.
• The report uses a target P/E multiple below that of global DRAM peers to reflect elevated share-price volatility in the first half of 2026 and July.

What to watch

• Monitor whether DRAM contract prices continue rising in September and drive third-quarter ASP growth above 30%.
• Monitor incremental orders from module manufacturers and OEMs, as well as the actual pricing of new smartphone and PC products in September and the fourth quarter.
• Monitor memory ASPs in the third and fourth quarters of 2026 and in 2027, along with changes in the pricing and volumes of long-term agreements.
• Monitor memory manufacturers' shareholder return ratios and allocation between buybacks and dividends.
• Monitor the timeline from construction to mass production for new fabs, capital expenditure, and the pace of incremental supply.
• Monitor progress in 1c-node DRAM, 300-plus-layer NAND, TCB, and hybrid bonding.
• Monitor whether AI chip demand from large US technology companies exceeds expectations.