League of Nations Minsheng Securities: Semiconductor industry favors storage from “peak cycle” to “long-term profit period”

The Zhitong Finance App learned that Guolian Minsheng Securities released a research report saying that this round of the AI-driven storage boom cycle has not only brought about improvements in profitability, but more importantly, has driven changes in the industry's business model and capital market pricing logic. For original storage manufacturers, the future market's focus will gradually shift from “how much profit margins can be increased” to “how long can high profits last”. If leading manufacturers can continue to adhere to supply discipline, strengthen value over bit strategies, and extend the boom cycle through LTA, etc., the industry is expected to reduce profit fluctuations and improve cash flow stability, and the capital market is also expected to provide a longer-term, higher quality valuation system. Recommended concerns: (1) storage of original manufacturers; (2) module manufacturers and distributors; (3) production expansion related.

The main views of Guolian Minsheng Securities are as follows:

incident

Recently, SK Group Chairman Choi Tae-won publicly stated that in 2027, global demand for AI semiconductors is expected to increase 60% to 100% year-on-year, while new supply is almost zero, and the storage industry's supply and demand gap may expand further. At the same time, it believes that it is not healthy for chip prices to remain high for a long time, and that leading manufacturers should achieve long-term development by expanding supply and stabilizing the industrial chain. The bank believes that this statement reflects changes in the way the storage industry operates, and also means that the capital market's pricing logic for original storage plants may gradually shift from a “peak profit” to a “long-term profit period.”

Under the traditional cyclical framework, the market always trades at a peak profit rather than a continuous profit

Over the past 20 years, the storage industry has always followed the classic cycle of “price rise — profit release — capital expenditure expansion — oversupply — price decline”. Due to sharp fluctuations in the relationship between supply and demand, and profits have strong cyclical characteristics, the capital market is more inclined to regard storage as a typical cyclical stock rather than a growth stock. Therefore, whether it is Samsung Electronics, SK Hynix, or Micron, the market always prices around peak profit. When ASP enters the end of the upward trend, valuations often fall early. The essential reason is not insufficient profitability, but the market always lacks confidence in the sustainability of profits.

In the AI era, the original factory's operating goal is shifting from maximizing profit to maximizing profit

The construction of AI computing power infrastructure is driving demand for HBM, DDR5 and enterprise SSDs to continue to grow, bringing the storage industry into a new stage driven by demand. At the same time, the business philosophy of leading manufacturers such as Samsung, SK Hynix, and Micron has also changed markedly. The focus of industry competition is gradually shifting from bit growth to value growth, and from market share competition to profit quality competition. Recently, the three original manufacturers have continued to strengthen their value over bit strategies, actively reducing profit fluctuations through long-term supply agreements (LTAs), more prudent capital expenditure, and rational supply management, rather than seeking to maximize short-term profits. The recent statement by SK Hynix management that “the price rise too fast is not a long-term healthy state” essentially does not send a signal that prices have peaked, but rather reflects that leading manufacturers are paying more attention to long-term stability and profit sustainability in the industrial chain, hoping to maximize corporate value by moderately releasing supply and extending the boom cycle, rather than simply pursuing peak profit margins.

Valuation logic is expected to shift from cyclical pricing to long-term pricing

The bank believes that the biggest change in the storage industry in the AI era is not how high profit margins can be increased, but rather how long the high profit state can last. If AI demand continues to be released, and leading manufacturers effectively smooth profit fluctuations through supply discipline, long-term agreements, and rational expansion of production, then even if profit margins fall somewhat from the peak of the cycle, profit sustainability and cash flow stability are expected to increase significantly. Judging from the valuation framework, it is not only the level of profit that determines the value of an enterprise, but also the duration of profit. As the market's confidence in the long-term profitability of the industry gradually increases, the original factory valuation system is expected to gradually evolve from a traditional cyclical stock framework to a growing manufacturing framework, and there is room for systematic improvement in the industry's valuation center.

Risk warning: AI capital expenditure fell short of expectations, the original factory restarted aggressive production expansion, supply discipline weakened, and the market re-priced traditional cyclical stocks.