The significant outperformance of memory-related stocks has been a key driver behind substantial gains in U.S. and South Korean equity markets in recent years. However, market observers caution that investors who overlook the sector's inherent cyclicality do so at their own peril. Since the launch of ChatGPT in December 2022, the memory industry has experienced a sustained growth phase, fueled by surging demand for high-bandwidth memory (HBM). Samsung Electronics and SK Hynix, among the largest producers of HBM chips, have seen their share prices surge by 114% and 186% year-to-date, respectively. U.S.-based Micron Technology and SanDisk have also risen by 141% and 156% in 2026. The core narrative underpinning the bull market in memory chip stocks is the belief that the industry has broken free from its historical boom-and-bust cycles, which were characterized by volatile demand against relatively fixed supply. Industry executives argue that artificial intelligence has fundamentally altered this pattern, with structural supply shortages potentially keeping prices elevated for years to come. William de Gale, a portfolio manager at BlueBox Asset Management, noted on Wednesday that this industry is prone to "massive swings." "Long-term, it's a pretty terrible industry," he stated. "I suspect that remains the case—often, when people argue the memory cycle is gone and it's now a long-term value creation story, that's precisely when everything is about to turn down sharply."
**New Innovations** Despite the current extreme tightness in memory chip supply, Alphabet's Google introduced TurboQuant on March 24. This new compression method is claimed to reduce the memory required to run large language models by five-sixths. The technology aims to enhance the efficiency of AI models, a primary goal for leading research labs. Such advancements have the potential to significantly reduce demand for AI memory chips, which have been crucial components for companies like Google, OpenAI, and Anthropic in training their large language models. In a report on Tuesday, Deutsche Bank wrote that investors should "continue to prepare for ongoing AI-related disruption," citing the launch of TurboQuant as an example. The technology's announcement triggered a sharp decline in the share prices of major memory chip suppliers. However, analysts added that whether TurboQuant technology will lead to a structural shift in demand "remains to be seen." Jon Cunliffe, Head of the Investment Office at wealth management firm JM Finn, suggested there is significant room for production capacity to increase over the next three years, which could alleviate supply tightness, "particularly if AI demand grows at a more normalized pace." "Today's share prices assume prices will remain high for a long time, that companies will maintain discipline by not over-investing, and that profit margins will be far superior to the past," he added. "We would also highlight that the sector has experienced high momentum crowding in recent weeks, making it vulnerable to a significant correction." Andrew Lapin, Chief Investment Officer at Ranmore Fund Management, stated that while predicting exactly when memory chips will become oversupplied is impossible, investors must exercise caution when investing in an industry "where historical returns on capital have been average at best, but current pricing implies exceptionally high future returns." When discussing the possibility of a structural shift in the memory industry, Lapin remarked, "Old habits die hard."
**South Korean Concentration Risk** Samsung and SK Hynix have propelled South Korea's benchmark Kospi index to stratospheric heights in 2025 and 2026. Combined, these two stocks account for over 50% of the entire index's weighting. Steve Brice, Global Chief Investment Officer at Standard Chartered, said on May 13 that he believes the optimism in the South Korean stock market is "not far from a peak." "I was in Korea last week, and we advised clients to take some profits on parts of their portfolio and rotate into a globally diversified portfolio." Nevertheless, some banks remain bullish on the prospects of these two companies. Nomura estimates that SK Hynix's share price could reach 4 million won within the next 12 months, while Samsung Electronics could reach 590,000 won. Based on current share prices, this implies a further 20% upside for Samsung and a potential doubling for SK Hynix.
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