Goldman Sachs elaborates on the "8 key points" of South Korean storage: valuation, long-term contracts, inventory, Changxin impact, repurchase, etc

Author: Bao Yilong

Samsung Electronics and SK Hynix's stock prices have significantly corrected in recent months, with valuations dropping to extremely pessimistic levels. However, Goldman Sachs believes that the fundamentals do not support such low pricing and has reiterated its buy rating for both companies.

According to the news from the trading desk, on August 4, Goldman Sachs' Giuni Lee team published a research report that systematically addressed the market's current eight core concerns regarding the South Korean memory industry, covering topics such as HBM pricing prospects, long-term agreement structures, inventory conditions, the impact of Changxin, shareholder returns, and the influence of SK Hynix's US ADR.

Analysts believe that most of the aforementioned concerns have been overly interpreted by the market, and the actual supply-demand dynamics still support memory prices remaining high.

In this context, Samsung Electronics and SK Hynix's stock prices have dropped by 23% and 35% respectively over the past month, causing the expected price-to-earnings ratios for both companies in 2027 to fall to about 3.5 to 3.6 times, with price-to-book ratios only at 1.4 to 1.6 times.

Goldman Sachs pointed out that this valuation level implies extreme distrust from the market regarding the sustainability of the two companies' earnings, which is clearly at odds with their actual fundamental conditions.

Focus 1: HBM Pricing May Double by 2027, Goldman Sachs Predicts Far Exceeds Market Consensus

Goldman Sachs expects the average price of HBM from Samsung Electronics and SK Hynix to increase by approximately 87% and 100% year-on-year by 2027, respectively, approaching $2.9 per Gb. Among them, the price increase for similar products is about 60%, with the remaining increment coming from product mix improvements.

The core logic supporting this judgment lies in the continued tight supply-demand situation.

The report points out that the demand for HBM driven by AI servers continues to exceed supply, while the yield of the latest generation of HBM has significantly declined due to more advanced process nodes and higher stacking layers. Coupled with a higher conversion ratio between HBM and ordinary DRAM, the difficulty of supply expansion has further increased.

Goldman Sachs expects the supply-demand gap for HBM in 2027 to be tighter than this year.

Another key factor is the significant price difference between HBM and ordinary DRAM.

As of the second quarter of 2026, due to ordinary DRAM contracts being negotiated on a monthly or quarterly basis, they can reflect market dynamics more quickly, and their pricing has exceeded that of HBM, which is primarily based on annual fixed contracts, creating a clear inversion.

Goldman Sachs predicts that the average price of ordinary DRAM will rise from about $0.5 to $0.6 per Gb at the end of 2025 to about $2 at the end of this year, at which point HBM will inevitably re-establish a price premium and align closer to the operating profit margin levels of ordinary DRAM.

Goldman Sachs' forecast for SK Hynix's average HBM price is about $2.9 per Gb, approximately 24% higher than Bloomberg's market consensus.

Based on this calculation, the proportion of HBM revenue in the total DRAM revenue of Samsung and Hynix is expected to increase from about 8% and 14% this year to 16% and 22% in 2027, and further rise to 18% and 25% in 2028.

Focus 2: Long-Term Agreement Terms More Favorable to Suppliers

As market expectations for long-term tightness in memory supply continue to strengthen, both supply and demand sides are actively promoting the signing of long-term agreements (LTA).

Goldman Sachs believes that based on disclosed content and channel research, LTA terms are leaning towards suppliers along four dimensions: longer duration, broader coverage, more favorable pricing structure, and stronger binding force.

In terms of duration, most suppliers indicate that contracts are primarily for five years, with some customers opting for three years. Samsung revealed in its earnings call that its LTAs are typically based on a five-year term and are extended annually through a rolling renewal mechanism, theoretically allowing the contract duration to exceed five years.

In terms of coverage, the target is rising from 50% to 60% to 70%. Specifically:

• SanDisk has signed contracts with five customers, covering about one-third of shipments in 2027, with a long-term target of 50%;
• Micron has signed 16 strategic customer agreements, covering about 20% of DRAM shipments and one-third of NAND shipments, with a final goal of LTA revenue accounting for over 50%;
• Hynix has stated that it has completed negotiations for about 10 long-term agreement terms;
• Samsung disclosed that it has signed contracts with the top five global data center customers and is in final negotiations with another five major customers, expecting that after the contracts are signed, the multi-year contract volume will reach about 60% to 70% of planned capacity.

In terms of pricing structure, it is evolving towards "price ranges" and "floor price protection" mechanisms.

Micron has explicitly stated that its largest contracts have upper and lower price limits, based on market prices in the second quarter of 2026, and even with floor price sales, the gross margin remains above historical peak levels.

Samsung has indicated that it will adopt different pricing models based on customer groups and product categories, and has set floor prices for general products to mitigate market price fluctuation risks.

In terms of binding force, the prepayment mechanism is the biggest highlight distinguishing this round of long-term agreement terms from previous cycles:

• SanDisk disclosed financial guarantees (including prepayments) exceeding $11 billion;
• Micron expects to receive $22 billion in cash deposits and related financial commitments;
• Samsung stated that the contracts include large prepayments in the form of deposits, having received about one-quarter of the total contract prepayments, and as more contracts are finalized, the scale of prepayments is expected to further increase.

Focus 3: High Inventory Levels at Module Manufacturers Do Not Indicate Overall Industry Risks

Recent market concerns regarding high inventory levels at memory module manufacturers have intensified.

Goldman Sachs acknowledges that inventory at module manufacturers has indeed risen, especially against the backdrop of weak demand in consumer sectors like smartphones and PCs. However, the key point is that the module manufacturer market only accounts for a single-digit percentage of the overall memory market, so the substantive impact on the industry's fundamentals is limited, and it is more of an emotional shock.

From a more critical perspective of suppliers and end customers, inventory conditions are healthy.

As of the end of the second quarter of 2026, Goldman Sachs estimates that Samsung and Hynix's DRAM and NAND inventories are both within 2 to 4 weeks, below the normal level of about 4 to 5 weeks, and far below the common level of over 10 weeks seen before previous downturn cycles.

Given that the supply growth rate is expected to continue to lag behind the demand growth rate over the next 12 to 18 months, this low inventory state is expected to persist.

For end customers (especially server customers), even though procurement has been active in recent quarters, inventory levels will remain within normal ranges, as the procured products are primarily used for immediate production.

Focus 4: NAND Supply and Demand Will Not Reverse, Server Demand Sufficient to Offset Weakness in Consumer Sector

Concerns about oversupply in NAND have recently intensified, with some bears citing the decline in spot prices as evidence. Goldman Sachs holds a different view.

From the supply-demand dynamics, Goldman Sachs expects the supply-demand gap for NAND in 2027 to further widen compared to this year. The main reason is that large suppliers are focusing their capital expenditures on DRAM, and the expansion of NAND is primarily through process upgrades rather than wafer capacity expansion, with supply growth expected to continue lagging behind demand in the medium term.

From the demand structure perspective, Goldman Sachs estimates that enterprise-level solid-state drive (SSD) demand will increase from 474EB in 2026 to 755EB by 2028, with year-on-year growth rates of 66%, 31%, and 22%, respectively.

Despite some weakness in consumer demand, Goldman Sachs states that its channel research shows that there is still upward potential for enterprise-level SSD demand, sufficient to offset pressure from the consumer sector.

Regarding the recent weakness in spot prices, Goldman Sachs points out that the decline is primarily concentrated in the specific specification of TLC 512Gb, while other specifications like TLC 1Tb have remained stable.

It is worth noting that the price of TLC 512Gb has increased nearly 600% over the past year, significantly exceeding the more than 400% increase of most other products, and the current pullback is essentially a normal correction after a significant outperformance.

Focus 5: Goldman Sachs Expects Actual Returns to Exceed Market Expectations

Korean memory manufacturers did not provide clear statements on specific return plans during their recent earnings calls, leaving some investors disappointed.

Goldman Sachs noted that on August 3, Japanese memory manufacturer Kioxia announced a shareholder return plan, resulting in a 6% single-day increase in its stock price, while on the same day, Samsung and Hynix's stock prices both fell by 9%. Goldman Sachs believes that the divergence between the two is at least partially due to the gap in shareholder return expectations.

Nevertheless, Goldman Sachs points out that both Samsung and Hynix clearly stated in their earnings calls that they are actively reviewing various shareholder return plans.

Samsung's current three-year shareholder return policy expires this year, with a commitment to return 50% of three-year free cash flow to shareholders.

Goldman Sachs believes that the current Bloomberg consensus expectation of 8,638 KRW per share dividend has room for upward adjustment and has updated its own forecast to 9,500 KRW. SK Hynix's three-year policy covers 2025 to 2027, and Goldman Sachs similarly expects actual dividends to exceed market consensus expectations.

In addition to increasing dividends, Goldman Sachs points out that buyback announcements will be strongly welcomed by the market, especially given the recent sharp decline in stock prices. For Hynix, due to ADR listing causing share dilution, buybacks and cancellations may be one of the effective means to hedge against dilution effects.

Focus 6: SK Hynix ADR Premium Difficult to Eliminate in the Short Term, but Helps Repair Historical Discount

SK Hynix completed its US ADR listing on July 10, and since then, the ADR has continued to trade at a premium to domestic stock prices, with an average premium of about 26%, currently around 30%.

At the same time, the 12-month forward price-to-earnings ratio of Hynix's domestic stock is still about 41% lower than Micron's and about 30% lower than Hynix's ADR.

Goldman Sachs attributes the aforementioned discount and premium differences to two points:

• First, there are procedural restrictions on the conversion between ADR and domestic stocks, leading to a divergence in investor groups;
• Second, the issuance volume of ADR is extremely limited, accounting for only about 2.4% of the total share capital.

Hynix has stated that ADR can be freely converted into domestic stocks, but the conversion of domestic stocks into ADR is subject to conversion limits and requires a lengthy regulatory filing process that can take weeks or longer.

Hynix Chairman Choi Tae-won has expressed an open attitude towards increasing ADR issuance. Nevertheless, referring to TSMC's long-standing ADR premium, Goldman Sachs believes that as long as the two-way conversion mechanism has not been substantively improved, the premium of Hynix's ADR relative to domestic stocks will persist.

However, in the long run, the ADR listing provides a direct participation channel for global institutional investors, helping Hynix gradually narrow the historical valuation discount compared to international peers.

Focus 7: SK Hynix's Second Quarter Performance Below Expectations Due to One-Time Factors, Strong Recovery Expected in Third Quarter

SK Hynix achieved revenue of 79.3 trillion KRW in the second quarter of 2026, with an operating profit of 60.5 trillion KRW. The operating profit is basically in line with Goldman Sachs' forecast of 59.1 trillion KRW but is about 7% lower than Bloomberg's market consensus expectation of 65 trillion KRW.

Goldman Sachs believes that the main reason for the performance being below market consensus expectations is that the average price of DRAM did not perform as expected, with an actual quarter-on-quarter growth of about 29%, lower than Goldman Sachs' previous forecast of 39%. Among them, the average price of ordinary DRAM has begun to reflect the previously locked contract prices with customers, while the average price of HBM is lower than expected due to limited progress in switching to HBM4 product mix.

Looking ahead to the third quarter, Goldman Sachs expects DRAM shipments to increase by about 10% quarter-on-quarter, and the average price to increase by about 19%, mainly benefiting from the ramp-up of HBM4 mass production and the improvement in product mix from 1c nm DRAM expansion, corresponding to an operating profit forecast of about 77 trillion KRW, which is generally in line with market consensus expectations.

Goldman Sachs also points out that compared to some peers who have locked in contracts with price caps, Hynix has greater exposure to price elasticity in ordinary DRAM, and if price performance exceeds expectations, the company's upside potential may be more significant.

Focus 8: The Impact of Changxin Storage is Limited to the Chinese Domestic Market

With Changxin Storage completing its IPO, investor concerns about the impact of Chinese memory manufacturers on the global supply-demand landscape have intensified.

Goldman Sachs believes that Changxin Storage's expansion will primarily meet domestic demand, with limited substantive impact on the global supply-demand tightness.

From a technological gap perspective, Goldman Sachs cites TrendForce data indicating that Changxin Storage's current mainstream process is equivalent to the 1z node, while Samsung and Hynix are transitioning from the 1a/1b to the 1c node.

From a product structure perspective, about 70% of Changxin Storage's mobile DRAM shipments are LPDDR4(X), while Samsung and Hynix's mobile DRAMs have LPDDR5(X) accounting for 75% to 85%, indicating a clear product positioning misalignment.