Beyond HBM: Server DRAM and NAND Boom Too

The high profitability created by AI data centers has offset high-rate funding costs, breaking through the negative of a 10-year government bond yield above 5%. As the traditional high-rate flight playbook is diluted by the growth of the AI industry, the market is holding up firmly.

This is because the high profitability of artificial intelligence (AI) data centers is offsetting high-rate funding costs. CEO Kang Kwan-woo said, "Even at 5.2%, companies earning money from AI are earning enormous amounts. The reason they keep building data centers is the calculation that even if they borrow at high rates, data center profitability will come out much better."

In a traditional high-rate environment, capital outflows were common, but the explosive growth of the AI industry dilutes that formula.

Micron's guidance and margins were cited as key variables that matter more than its earnings themselves. CEO Kang said the market has already priced in earnings expectations, so profit-taking sell orders could pour in, and he examined past cases where stock prices corrected despite strong earnings. He recommended responding to a short-term correction by buying on the dip, and added that investors should watch how the flow leads into Samsung Electronics' preliminary third-quarter earnings.

He pointed to guidance and margin rates as the key variables for the earnings release. In the week before Micron's earnings announcement, the market showed a tense bull-bear pattern.

Kang advised that if a short-term correction occurs, investors should use it as a buy-the-dip opportunity and need not exit the market through the period leading up to Micron's and Samsung Electronics' preliminary third-quarter earnings announcements.

As the AI market expands from the training stage into the inference market, demand for general-purpose memory is surging.

He added that investors should also watch traditional memory markets such as server DRAM and enterprise SSDs, not just HBM4.

Because supply is limited even for these general-purpose product lines, the operating leverage of companies with large production capacity (CAPA) is expected to grow even larger.

SK Hynix is evaluated as a 'model student' already posting high margins, and there is analysis that its room for additional growth may be limited.

By contrast, Samsung Electronics has overcome weakness in HBM3 and secured mass production and customer test samples first for HBM4, showing a large degree of change.

CEO Kang sees Samsung's large production capacity (CAPA) working more advantageously for earnings recovery when the overall DRAM and NAND market rebounds, and said, "From a stock perspective, the pace of improvement, the rate of change, and the rate of margin increase may be stronger for Samsung Electronics."

A perception is spreading in the market that the mechanical selling after the ex-dividend date was excessive. It is time to focus on the company's medium- to long-term earnings rather than short-term issues.

Samsung Electronics' preliminary third-quarter earnings consensus is around 110 to 111 trillion won, which is solid even after accounting for exchange-rate swings and provisions. Kang sees this semiconductor cycle not as a brief boom but as one that will persist for a long time on a plateau.

While SK Hynix's ownership ratio is declining, Samsung Electronics is holding up and moving sideways. CEO Kang suggested that a hedge fund manager should adjust positions by going long Samsung Electronics and short SK Hynix, narrowing the gap to 2 to 3 percentage points.

Operating profit estimates for Samsung Electronics and SK Hynix for 2027 and 2028 continue to be revised upward. For Samsung Electronics, the 2027 estimate was raised by 8 trillion won, and the 2028 estimate was raised by as much as 19 trillion won.

Yet the stock shows a 'value trap' phenomenon, with forward PER staying in the low-to-mid 4x range. This is because concerns about future earnings declines and the possibility of hyperscalers cutting capital expenditure (CAPEX) are already reflected in the share price.

The market generally assumes that rising rates raise the discount rate and hurt growth stocks, which is why semiconductor stocks fall together.

But CEO Kang argues that for Samsung Electronics and SK Hynix, which hold large cash reserves, rising rates are actually advantageous for earnings. He explains that Korean market sensitivity to changes in the US 10-year Treasury yield is being excessively priced into stocks.

Chinese companies are narrowing the technology gap in legacy memory, threatening Korean companies.

However, CEO Kang argues that high-end products such as HBM require EUV (extreme ultraviolet) equipment, and in this area the technology gap with China will instead widen.

He also noted that Chinese companies have greatly narrowed the technology gap in legacy processes using DUV equipment.

However, in terms of using EUV equipment, which is central to fine processes, China's catch-up is still far off. As semiconductor competition shifts from quantity to quality, the technology distance from China is likely to widen even further as products become more advanced.

Despite concerns about China's capacity (CAPA) expansion, the upgrade to HBM4 and HBM4E is an important variable.

When producing high-end HBM, wafer consumption rises to three times that of conventional products, which naturally limits supply in the general DRAM segment.

As a result, a repeat of past DRAM price collapses is unlikely, and Korean companies' medium- to long-term advantage is expected to persist despite short-term threats from China.