The memory chip sector is entering a new phase characterized by accelerating price increases and significant profit expansion, according to a recent report from Nomura Securities. The analysis indicates third-quarter price hikes will far exceed prior expectations, while the profitability gap between HBM and standard DRAM is projected to narrow around 2027.
Nomura Securities has raised its price target for SK Hynix Inc. by 18% to 4.7 million won from 4.0 million won. It has maintained its target for Samsung Electronics Co., Ltd. at 670,000 won, following a prior increase on June 22. Based on the closing prices on the report's date, this implies a potential upside of approximately 96.8% for Samsung and 82.2% for SK Hynix.
Key Drivers for Target Price Revisions
Two primary factors underpin the target price adjustments. First, the magnitude of memory price increases in the third quarter is significantly surpassing earlier forecasts. Second, Nomura has concurrently raised its 2027 profit projections and adopted a more moderate assumption for the potential appreciation of the Korean won.
Third Quarter Price Surge Exceeds Forecasts
Previously, the firm anticipated a sequential price increase of about +5% for standard DRAM and +25% for NAND in Q3. The updated report has sharply revised the DRAM forecast to a +24% quarter-on-quarter increase, while keeping the NAND forecast unchanged at +25%.
Three concurrent trends are driving the price momentum. First, consumer products like smartphones and PCs experienced relatively modest price increases in Q2, creating a lower base and greater room for catch-up growth in Q3. Second, cloud service providers are paying higher prices for DDR5 and LPDDR5 memory. Third, the sales mix is shifting towards higher-priced HBM4 products, which lifts the overall average selling price.
Analysts also expect shipment growth in the second half of the year to outpace the first half, as contributions from new capacity gradually come online.
Diverging Q2 Performance: Samsung Beats, Hynix Shows Strong Net Profit
The two companies' earnings trajectories showed a clear divergence in the second quarter.
For Samsung Electronics Co., Ltd., analysts raised their Q2 operating profit forecast to 7.6 trillion won from a previous estimate of 6.7 trillion. This revision is primarily due to the finalization of a labor agreement setting the bonus payout ratio at 10.5%, lower than the previously assumed 12%, which reduced the related provision. The report notes Samsung's achieved price increases in Q2 were "broadly in line with prior assumptions" and relatively larger than its peers.
However, Samsung's non-memory businesses faced significant pressure. Its mobile business reportedly fell into a hardware loss due to rising memory costs, as estimated price increases of 10%-15% on smartphones were insufficient to fully offset the impact. Losses in the foundry/LSI business also widened due to increased bonus expenses.
For SK Hynix Inc., analysts estimate Q2 operating profit at approximately 6.0 trillion won, slightly below previous expectations. This is attributed to price increases for consumer electronics and smartphone-related products lagging behind those for server products by a larger-than-expected margin during the quarter.
Nevertheless, SK Hynix's net profit is projected to significantly exceed market expectations. Analysts estimate a valuation gain of about 5.4 trillion won in Q2 from its convertible bonds in Kioxia (representing roughly a 14% stake), plus gains from the disposal of remaining SPC1 equity. Total non-operating income related to Kioxia is expected to exceed 6 trillion won, leading to an estimated Q2 net profit approaching 10 trillion won. The report highlights that SK Hynix's initial investment in Kioxia was around 400 billion won, with total returns estimated at 7-8 trillion won to date, representing a nearly 20-fold return on investment.
HBM Profitability: Catching Up to Standard DRAM by 2027
Nomura notes the current operating profit margin for HBM is around 50%, compared to approximately 80% for standard DRAM, indicating a substantial gap.
The firm uses a simple mathematical illustration to show the challenge of closing this gap: HBM product prices would need to rise over 100% to achieve profitability levels comparable to standard DRAM. This underscores both the significant room and necessity for HBM price increases.
Consequently, the firm believes it is "increasingly likely" that HBM price hikes in 2027 will exceed prior expectations and has raised its HBM pricing assumptions accordingly. In its model for SK Hynix, the average selling price for HBM is projected to surge by about 100%, from around $12/GB (1Gb equivalent) in 2026 to approximately $24.1/GB in 2027.
Projections for SK Hynix show the HBM operating profit margin improving from about 57% in 2026 to around 70% in 2027, gradually converging toward the estimated 84% margin for standard DRAM.
Long-Term Agreement Negotiations Underway
Long-Term Supply Agreements are expected to be primarily negotiated with cloud service providers and Nvidia.
It is understood that each memory supplier is currently in LTA discussions with about 2 to 4 customers, with the progress and key terms, including pricing and prepayments, varying by supplier and client.
Analysts expect LTAs to begin execution from the second half of 2026 or 2027, at which point visibility into the specific terms will improve. While the exact terms are not yet disclosed, their impact on the profitability of individual suppliers could diverge.
Significant 2027 Profit Forecast Upgrades and Potential Dividend Surge
Nomura has raised its operating profit forecasts for Samsung Electronics Co., Ltd. to 37.1 trillion won for 2026 and 59.8 trillion won for 2027, representing increases of 21% and 38%, respectively, from its May 15th projections. The 2027 operating profit forecast for SK Hynix Inc. was raised by 19% to 46.8 trillion won from 39.4 trillion won.
Two key drivers for the upgrades are higher-than-previously-assumed memory price increases and a more moderate forecast for Korean won appreciation. The report suggests that overseas acquisitions by Korean companies and offshore asset allocation by domestic institutional investors during this memory super-cycle could be significantly larger than historical patterns, thereby curbing excessive won strength.
Regarding shareholder returns, Nomura expects Samsung Electronics to initiate a share buyback in the second half of the year for employee compensation and shareholder returns, with some repurchased shares potentially being cancelled. Assuming a maintained dividend payout ratio of 25%, total dividends in 2027 could reach approximately 9.7 trillion won, an increase of about nine times compared to 2025. This would translate to a dividend yield of around 4.5% for common shares and 7.5% for preferred shares based on current prices.
Four Key Risks to Monitor
The report also outlines four risks requiring ongoing attention.
First is the risk of data center construction delays. Significant delays in U.S. data centers due to labor shortages, power supply issues, or social resistance could negatively impact demand in the AI hardware supply chain.
Second is AI market concentration risk. If the competitive landscape among AI developers evolves into a highly concentrated market structure, the bargaining power of the AI hardware supply chain could weaken. The report believes this stage has not yet been reached, but signs of market concentration could emerge as early as 2027-2029.
Third is the risk of capacity expansion by Chinese memory manufacturers. Chinese suppliers are estimated to hold about 30% of the domestic Chinese memory market and close to 10% globally. Accelerated expansion by these players, potentially through the adoption of domestic semiconductor equipment, could impact the broader commodity memory market.
Fourth is the risk of fund flows following substantial share price gains. Shares of Samsung and SK Hynix have risen 7 to 20 times from their 2025 lows, and their weightings in emerging market benchmark funds have each exceeded 10%. The domestic equity allocation of Korea's National Pension Service has also surpassed its upper limit, implying potential selling pressure if prices rise further. The report expects supply-demand dynamics to improve from the second half of the year as both companies accelerate share buybacks and cancellations.
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