Memory chip shares have experienced significant volatility this week, with a combination of negative signals abruptly weighing on the AI-driven rally seen earlier.
On Wednesday, Micron Technology (MU) shares plunged 10% in a single session, while the American Depositary Receipts (ADRs) of SK hynix (SKHY) fell 9%, erasing most of the gains from the previous trading day. The immediate catalyst for this sell-off was a warning from Berkshire Hathaway (BRK.B)'s Warren Buffett about rampant speculation in the AI theme and the difficulty in finding true value, although he did not single out any specific companies.
Concurrently, GF Securities (Hong Kong) lowered its forecast for third-quarter DRAM price increases during a monthly call, citing strong customer resistance to price hikes approaching 30%.
This round of declines highlights the core contradiction in the memory sector: while fundamental data remains robust, expectations of supply expansion and risks of specification downgrades on the demand side are eroding market confidence in the sustainability of high prices.
Buffett's Remarks Trigger Sentiment Reversal
Micron Technology's (MU) performance this week has been a rollercoaster ride. On July 13th (Monday), its stock fell 4.3% to close at $937. On July 14th (Tuesday), following a target price upgrade to $1,750 by KeyBanc, which forecasted a memory shortage persisting until 2027, the stock rebounded 4.7%, briefly touching $994.80 intraday. On July 15th (Wednesday), Buffett's comments caused a sharp reversal in market sentiment, with the stock dropping to around $865 and its market cap falling back to approximately $1.05 trillion.
Buffett's exact words were that it is becoming "harder and harder" to find truly valuable investments when everyone is keen on "gambling" on themes like AI. While not directed at Micron Technology (MU), this remark precisely hit the weak spot in the recent trading pattern of memory stocks—investors are reacting to every piece of news like a bet on price movements rather than based on long-term fundamental judgment.
A market observer noted that the price action of SK hynix (SKHY) following its Nasdaq listing last week epitomizes this "gambling mentality": investors initially bought heavily after the company's CEO indicated a shift in client spending towards memory products, only to sell off rapidly later due to concerns that its capacity expansion plans would depress industry pricing.
DRAM Price Hikes Face Resistance
GF Securities (Hong Kong) revealed in its monthly call that customers are showing strong resistance to DRAM price increases nearing 30%, leading the firm to slightly lower its Q3 DRAM price growth forecast. This contrasts with KeyBanc's earlier projection of a 15% to 20% price increase for DRAM in Q3, indicating that demand-side bargaining power is constraining supply-side pricing expectations.
GF Securities (Hong Kong) also noted that specifications for DDR5 in general servers are expected to be downgraded by about 50% from previous levels. DRAM suppliers are advancing new 96GB or 64GB RDIMM and MRDIMM products, with the latter expected to become a new mainstream specification.
Furthermore, according to the firm's analysis from July 2nd, the LPDDR5X capacity in Nvidia's VR200 NVL72 racks has been significantly reduced, potentially dropping to as low as a quarter of the original specification in extreme scenarios. This would compress the LPDDR5X cost from a potential climb to $1.2 million to around $293,000. The firm also expects Nvidia's Vera CPU racks to adopt a 96GB SOCAMM solution, reducing total memory capacity from the spec sheet's 1.5TB to 768GB, which may also delay delivery timelines.
NAND and HBM Emerge as New Divergence Points
While the outlook for DRAM has turned more cautious, GF Securities (Hong Kong) has become notably more optimistic about NAND flash. The firm pointed to continued stronger-than-expected demand for KV cache offloading and a nascent trend of using NAND to replace expensive DRAM, both supporting NAND demand.
KeyBanc analyst John Vinh maintained a positive view on the overall memory market, forecasting NAND price increases of 30% to 40% in Q3 and another 15% in Q4. He also expects HBM prices to more than double next year. HBM is a critical memory component for AI processors, and Micron Technology (MU) is one of the HBM suppliers for Nvidia's AI processors, embedding it deeply within the AI hardware supply chain.
GF Securities (Hong Kong) holds an optimistic view on SK hynix's (SKHY) Q2 performance, expecting revenue of 85 trillion won and a gross margin of 63%.
SK hynix ADR Premium Faces Pressure to Narrow
SK hynix (SKHY) ADRs fell 9% to $176.46 on Wednesday, diverging sharply from its South Korean-listed shares, which closed up 8.8% on the same day. Following a 27% surge on Tuesday, the forward P/E ratio for SK hynix (SKHY) ADRs had risen to around 6.2x, approaching the valuation level of competitor Micron Technology (MU). The previous discount of ADRs relative to local shares was a key reason for some investors' purchases.
Currently, the premium of SK hynix (SKHY) ADRs over its South Korean-listed shares has exceeded 50% at times. The Korea Securities Depository is expected to open two-way conversion between local shares and ADRs on July 29th, which could significantly narrow this premium, posing a potential pressure point for ADR holders.
Strong Fundamentals Cannot Mask Cyclical Concerns
Despite the intense short-term sentiment swings, Micron Technology's (MU) fundamental data remains impressive. The company's latest quarterly revenue reached $41.5 billion, a 346% year-over-year increase; net profit soared nearly 1400% to $28.2 billion; and adjusted earnings per share were $25.11. Micron Technology (MU) has signed $22 billion in memory chip supply commitment agreements with 16 strategic customers. These agreements include "take-or-pay" clauses, cash deposits, and price floors, providing the company with demand anchoring that transcends daily market fluctuations.
However, the cyclical risks of the memory industry remain unresolved. Micron Technology's (MU) capital expenditure this year is approximately $27 billion, and SK hynix (SKHY) and Samsung Electronics are also engaged in large-scale capacity expansions. Once supply catches up with demand, the current pricing power will face a severe test. The core assumption of the bullish thesis—that the supply tightness will last longer than in historical cycles—and whether it holds true, remains the market's greatest uncertainty.
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