Valuation Plunge Sparks Debate
Samsung Electronics and SK Hynix shares have seen a significant correction in recent months, with valuations falling to extremely pessimistic levels. However, Goldman Sachs believes the fundamentals do not support such cheap pricing and has reiterated buy ratings on both companies.
On August 4, a Goldman Sachs team led by Giuni Lee published a research report systematically addressing eight core market concerns about the Korean memory sector, including HBM pricing outlook, long-term agreement structures, inventory levels, the impact of CXMT, shareholder returns, and the implications of SK Hynix's US ADR listing. The analysts argue that most of these worries are overblown and that the actual supply-demand dynamics continue to support high memory prices.
Against this backdrop, shares of Samsung Electronics and SK Hynix have fallen 23% and 35%, respectively, over the past month. This has pushed their forward P/E ratios for 2027 to approximately 3.5-3.6 times and their price-to-book ratios to just 1.4-1.6 times. Goldman Sachs notes that this valuation level implies extreme market distrust in the sustainability of the companies' earnings, which is clearly at odds with their actual fundamental conditions.
HBM Pricing Could Double by 2027
Goldman Sachs forecasts that the blended average selling price for HBM from Samsung Electronics and SK Hynix will rise by roughly 87% and 100% year-over-year, respectively, by 2027, approaching $2.9 per Gb for both. Within this, price increases for comparable products are estimated at around 60%, with the remainder coming from an improved product mix. The core logic supporting this forecast is persistently tight supply and demand. The report indicates that HBM demand driven by AI servers continues to outpace supply, while yields for the latest generation of HBM have declined due to more advanced process nodes and higher stacking layers. Combined with a higher conversion ratio from standard DRAM to HBM, this makes supply expansion increasingly difficult. Goldman Sachs expects the HBM supply-demand gap to be tighter in 2027 than this year. Another key factor is the significant price disparity between HBM and standard DRAM. As of the second quarter of 2026, standard DRAM, with its monthly or quarterly contract pricing cycles that reflect market dynamics faster, has surpassed HBM, which relies on annual fixed-price contracts, creating a notable inversion. Goldman Sachs projects that the average selling price of standard DRAM will rise from approximately $0.5-0.6 per Gb at the end of 2025 to about $2 per Gb by the end of this year, forcing HBM to re-establish a price premium and align closer to the operating profit margins of standard DRAM. Goldman Sachs' forecast for SK Hynix's HBM average selling price is approximately $2.9 per Gb, about 24% higher than the Bloomberg consensus estimate. Based on this calculation, HBM revenue as a percentage of total DRAM revenue for Samsung Electronics and SK Hynix is expected to rise from around 8% and 14% this year to 16% and 22% by 2027, further increasing to 18% and 25% by 2028.
Long-Term Agreement Terms Favor Suppliers
As market expectations for prolonged tight memory supply strengthen, both supply and demand sides are actively promoting the signing of long-term agreements (LTAs). Goldman Sachs believes, based on disclosed content and channel checks, that LTA terms are shifting in favor of suppliers across four dimensions: longer duration, broader coverage, more favorable pricing structures, and stronger enforceability. In terms of duration, most suppliers indicate contracts are primarily for 5-year terms, with some customers opting for 3-year terms. Samsung Electronics revealed in its earnings call that its LTAs are typically based on a 5-year period, with a rolling renewal mechanism extending them by one year annually, theoretically allowing contracts to exceed 5 years. Regarding coverage, the target is moving from 50% to 60-70%. Specifically, SanDisk has signed contracts with five customers covering about one-third of its 2027 shipments, with a long-term target of 50%. Micron has signed 16 strategic customer agreements covering approximately 20% of its DRAM shipments and one-third of NAND shipments, with a final goal for LTA revenue to exceed 50%. SK Hynix has indicated it has completed contract term negotiations for about ten LTAs. Samsung Electronics has disclosed that it has signed contracts with the top five global data center customers and is in final negotiations with five other major clients, expecting that multi-year contract volume will reach approximately 60-70% of planned capacity once signed. The pricing structure is evolving towards mechanisms with "price ranges" and "floor price protection." Micron has explicitly stated that its largest contracts include price ceilings and floors, with the floor price, even if sold at the minimum, resulting in gross margins above historical peak levels. Samsung Electronics has indicated it will use different pricing models based on customer segments and product types, setting floor prices for general-purpose products to manage market price volatility risk. Regarding enforceability, the advance payment mechanism is the most significant feature distinguishing this cycle's LTAs from previous ones. SanDisk has disclosed financial guarantees (including advance payments) exceeding $11 billion. Micron expects to receive $22 billion in cash deposits and related financial commitments. Samsung Electronics has stated that its contracts include substantial advance payments in the form of deposits, having already received about one-quarter of the total advance payments under contract, with the scale expected to expand further as more contracts are finalized.
Module Maker Inventory No Widespread Threat
Recent market concerns have grown over high inventory levels at memory module makers. Goldman Sachs acknowledges that module maker inventories have indeed risen, particularly against the backdrop of weaker consumer demand in segments like smartphones and PCs. However, the key point is that the module maker market accounts for only a single-digit percentage of the overall memory market, so its actual impact on industry fundamentals is limited, representing more of a sentiment shock. From the more critical perspective of suppliers and end customers, inventory levels are healthy. As of the end of the second quarter of 2026, Goldman Sachs estimates that SK Hynix's and Samsung Electronics' combined DRAM and NAND inventory is within 2 to 4 weeks, below the normal level of approximately 4 to 5 weeks and far below the over 10-week levels commonly seen before previous downturns. Given that supply growth is expected to persistently lag demand growth over the next 12 to 18 months, this low inventory state is likely to continue. For end customers, particularly server clients, even with aggressive procurement in recent quarters, inventory levels are expected to remain within normal ranges, as products purchased are generally used directly for immediate production.
NAND Supply-Demand Not Reversing
Market concerns about a potential NAND oversupply have intensified recently, with some bears citing declining NAND spot prices as evidence. Goldman Sachs holds a different view. Looking at the supply-demand landscape, Goldman Sachs projects that the NAND supply-demand gap will widen further in 2027 compared to this year. The main reason is that major suppliers are focusing their capital expenditures on DRAM, while NAND capacity expansion is primarily driven by process node upgrades rather than wafer capacity increases. Consequently, supply growth is expected to remain below demand growth in the medium term. From a demand structure perspective, Goldman Sachs estimates that enterprise solid-state drive (SSD) demand will grow from 474 EB to 755 EB between 2026 and 2028, with year-over-year growth rates of 66%, 31%, and 22%, respectively. Despite some weakness in consumer demand, Goldman Sachs' channel checks indicate that enterprise SSD demand still has upside potential, sufficient to offset consumer-side pressure. Regarding the recent weakening of spot prices, Goldman Sachs notes that the decline is concentrated in a specific product, TLC 512Gb, while other specifications like TLC 1Tb remain stable. Notably, the price of TLC 512Gb has surged nearly 600% over the past year, significantly exceeding the over 400% gains of most other products. The current pullback is essentially a normal correction after a period of significant outperformance.
Actual Returns Expected to Exceed Market Expectations
Korean memory manufacturers failed to provide clear commitments on specific shareholder return plans during recent earnings calls, disappointing some investors. Goldman Sachs notes that on August 3, Japanese memory maker Kioxia announced a shareholder return plan, leading to its shares rising 6% on the day. On the same day, shares of Samsung Electronics and SK Hynix both fell 9%. Goldman Sachs believes this divergence is at least partly due to differing expectations for shareholder returns. Nevertheless, Goldman Sachs points out that both Samsung Electronics and SK Hynix have explicitly stated during earnings calls that they are actively reviewing various shareholder return proposals. Samsung Electronics' current three-year shareholder return policy expires this year, with a commitment to return 50% of its three-year free cash flow to shareholders. Goldman Sachs believes there is room for an upward revision to the current Bloomberg consensus dividend per share estimate of 8,638 Korean won, updating its own forecast to 9,500 Korean won. SK Hynix's three-year policy covers 2025 to 2027, and Goldman Sachs similarly expects actual dividends to exceed consensus estimates. Beyond increasing dividends, Goldman Sachs notes that buyback announcements would be strongly welcomed by the market, especially given the sharp recent decline in share prices. For SK Hynix, given the share dilution resulting from its ADR listing, buying back and canceling shares could be an effective means of hedging against the dilution effect.
SK Hynix ADR Premium to Persist Short-Term
SK Hynix completed its US ADR listing on July 10, and the ADRs have since traded at a premium to the domestic shares, averaging around 26%, with the current premium at approximately 30%. Meanwhile, SK Hynix's domestic shares' 12-month forward P/E ratio remains about 41% lower than Micron's and about 30% lower than its own ADR. Goldman Sachs attributes this discount/premium disparity to two factors. First, conversion restrictions between ADRs and domestic shares lead to a segmentation of investor groups. Second, the ADR issuance is extremely limited, representing only about 2.4% of total shares outstanding. SK Hynix has stated that ADRs are freely convertible into domestic shares, but conversion of domestic shares into ADRs is subject to conversion caps and requires a regulatory filing process that can take weeks or longer. SK Hynix Chairman Chey Tae-won has expressed openness to issuing additional ADRs. Even so, citing the precedent of TSMC's ADRs maintaining a long-term premium, Goldman Sachs believes that as long as the two-way conversion mechanism is not substantially improved, the premium of SK Hynix ADRs over domestic shares will persist. However, in the long run, the ADR listing provides a direct participation channel for global institutional investors, which could help SK Hynix gradually narrow its historical valuation discount compared to international peers.
Q2 Earnings Miss Seen as One-Off Event
SK Hynix reported revenue of 79.3 trillion Korean won and operating profit of 60.5 trillion Korean won for the second quarter of 2026. The operating profit was broadly in line with Goldman Sachs' forecast of 59.1 trillion Korean won but was about 7% below the Bloomberg consensus estimate of 65 trillion Korean won. Goldman Sachs attributes the miss versus consensus primarily to weaker-than-expected DRAM average selling prices, which grew approximately 29% quarter-over-quarter, below Goldman Sachs' forecast of 39%. Specifically, standard DRAM prices began to reflect previously locked-in contract prices, while HBM average selling prices were lower than expected due to limited progress in the product mix transition to HBM4. Looking ahead to the third quarter, Goldman Sachs expects DRAM shipments to grow approximately 10% quarter-over-quarter and average selling prices to increase roughly 19% quarter-over-quarter, driven by the ramp-up of HBM4 production and mix improvements from 1c nm DRAM expansion. This corresponds to an operating profit forecast of approximately 77 trillion Korean won, broadly in line with consensus estimates. Goldman Sachs also notes that compared to some peers that have locked in price cap contracts, SK Hynix has greater exposure to standard DRAM price elasticity. If price performance exceeds expectations, the company's upside potential could be more significant.
CXMT Impact Limited to Domestic Market
With CXMT completing its IPO, investor concerns about the impact of Chinese memory manufacturers on the global supply-demand landscape have increased. Goldman Sachs believes that CXMT's expansion will primarily focus on meeting domestic demand and will have a limited material impact on the global tight supply-demand situation. From a technology gap perspective, citing TrendForce data, Goldman Sachs notes that CXMT's current mainstream process is equivalent to the 1z node, while Samsung Electronics and SK Hynix are transitioning from the 1a/1b node to the 1c node. From a product structure standpoint, approximately 70% of CXMT's mobile DRAM shipments are LPDDR4(X), whereas LPDDR5(X) constitutes 75% to 85% of mobile DRAM shipments for Samsung Electronics and SK Hynix, indicating a clear product positioning mismatch.