Warnings have emerged that the memory semiconductor industry's characteristic boom-and-bust cycle could repeat itself, even as shares of Samsung Electronics (005930.KS) and SK hynix (000660.KS) surge on the artificial intelligence (AI) boom.
U.S. business network CNBC reported on Tuesday in an article titled "Investors warn against memory stocks' boom-and-bust cycle amid AI frenzy" that "while the exceptional returns of memory-related stocks in recent years have driven significant gains in U.S. and Korean equity markets, market experts caution that investors should not overlook the cyclical nature of the market."
The memory industry has shown full-fledged growth since the launch of ChatGPT in December 2022. The spread of generative AI has caused explosive demand for high-bandwidth memory (HBM).
Samsung Electronics and SK hynix are considered major HBM producers. Shares of the two companies have surged 114% and 186%, respectively, since the start of the year. U.S.-based Micron Technology and SanDisk also rose 141% and 156%, respectively, over the same period.
CNBC cited market expectations that "the memory industry has changed from the past" as the key backdrop supporting these gains. In the past, memory market conditions were structured around repeated booms and busts because demand fluctuated significantly while supply was difficult to adjust. However, since the spread of AI, the outlook that structural supply shortages will continue and high prices can be maintained for an extended period has gained traction.
CNBC reported that "executives have argued that AI has upended the industry's boom-and-bust history and that prices could remain elevated for years due to structural supply shortages."
However, some investment experts noted that such optimism should be approached with caution. William de Gale, portfolio manager at BlueBox Asset Management, told CNBC that the industry "tends to go through enormous booms and busts," calling it "a pretty horrific industry over the long term."
He emphasized that "every time people argue 'this has now become an industry that creates long-term value,' that's exactly when everything starts to go horribly wrong."
Memory chip supply is currently very limited. However, the possibility that AI model efficiency technologies could reduce memory demand faster than expected is also being mentioned as a variable. CNBC highlighted that Alphabet's Google unveiled a compression method called "TurboQuant" on March 24, which can reduce the amount of memory needed to run large language models by up to one-sixth.
Beyond Google, major AI research firms including OpenAI and Anthropic are also pursuing model efficiency improvements as a key research priority. If such technologies spread, demand for AI memory chips, which had been considered essential for training and running large language models, could decrease more than expected.
Deutsche Bank stated in a report that "investors should prepare for ongoing AI-related changes." While referring to the case in which shares of major memory suppliers plunged after the TurboQuant disclosure, the bank took a cautious stance, saying it "remains to be seen" whether the technology will actually change the demand structure.
The possibility of supply expansion is another variable. John Cunliffe, head of investment at asset management firm JM Finn, said in an interview with CNBC that "there is room for supply constraints to ease, with production rising meaningfully over the next three years, particularly if AI demand grows at a normal pace."
He continued, "Today's share prices have been formed on the premise that prices will remain high for a long time, that companies will manage themselves with great discipline so as not to overinvest, and that profit margins will be much better than in the past." He added, "I would also like to emphasize that in recent weeks, the concentration of momentum in the sector has intensified, making it vulnerable to a market correction."
Andrew Lapping, chief investment officer at Ranmore Fund Management, said that "it is impossible to predict when memory supply will exceed demand," adding that "investors should exercise caution when investing in industries that have shown average levels of return on capital in the past but are expected to generate very high returns in the future." On the possibility of structural change in the memory industry, he commented that "a leopard does not easily change its spots."
Concerns about the Korean stock market have also surfaced. Samsung Electronics and SK hynix are cited as the core stocks that have led the KOSPI's rise this year. Steve Brice, global chief investment officer at Standard Chartered, said, "I believe we are not far from the point where optimism about the Korean stock market peaks," adding that he has "advised clients to take profits on part of their portfolios and shift to a globally diversified investment portfolio."
However, some are still focused on the further upside potential of the two companies. Nomura forecasts that SK hynix shares will reach 4 million won and Samsung Electronics shares will reach 590,000 won within the next 12 months. This means that, based on current share prices, Samsung Electronics could rise about 20% further, while SK hynix could roughly double.
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