CITIC SEC released a research report stating that driven by AI demand, it believes the memory sector remains in the early-to-middle stage of a super cycle, with supply falling short of demand expected to persist at least until 2027. Since February, better-than-expected results and guidance from Kioxia, upward revisions to Q1 NAND contract prices, and strong January-February performance announcements from leading domestic module manufacturers have further validated the high level of prosperity in the memory industry. The firm continues to be optimistic about memory demand exceeding expectations and anticipates the supply-demand gap will last until the end of 2027. Core recommendations include: 1) Memory module companies, which have strong short-term earnings potential; and 2) Memory design companies, with continued recommendation of original memory manufacturers and design firms closely aligned with them. Key views from CITIC SEC are as follows: In the AI era, upgrades in memory bandwidth and capacity are central, with memory-compute integration being the trend. Near-memory computing is experiencing high growth, presenting favorable investment opportunities. Focusing on the domestic HBM and CUBE-related industrial chains, the firm highlights four key areas: 1) Memory solution providers: Essential partners for CUBE, offering customized design solutions to aid industrialization and enter high-end markets. Focus is on leading companies with support from original memory manufacturers and first-mover advantages. Also noteworthy are firms developing ultra-thin LPDDR stacking solutions. 2) Semiconductor equipment: Supporting the industry, benefiting from advanced packaging and testing demand upgrades, process optimization, and yield improvements, accelerating supply chain localization. Benefiting from advanced packaging upgrades and localization, key focus areas include etching, bonding, and thinning equipment. 3) Advanced packaging: A core breakthrough for high-end memory, with high equipment availability. Mainland Chinese companies lead in advanced packaging capabilities and are expanding capacity. Hybrid bonding is central to CUBE 2.0. Additionally, HBM supply chain advanced packaging providers offer CoWoS support. 4) Logic chip companies: Clients for near-memory computing, enhancing their own competitiveness and accelerating industrialization. Some design companies are actively developing 3D structured logic chips, currently focusing on edge SoCs/NPUs, with gradual deployment in cloud inference cards. Near-memory computing may help logic chip firms improve product performance, gain competitive advantages, and benefit from incremental AI demand. It is advised to monitor leading design companies. Risk factors include: Global macroeconomic downturn risks; weaker-than-expected downstream demand; innovation falling short of expectations; changes in the international industrial environment and escalating trade frictions; slower-than-expected computing power upgrades; lower-than-expected capital expenditure from cloud providers; delays in domestic computing chip shipments and deployment; slower-than-expected R&D progress in domestic semiconductor equipment; intensified industry competition; and currency fluctuations.
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