Bank of America: The storage cycle bids farewell to “J-type” growth, but the fundamental upward space is still huge, and there is still a shortage of chips or it will continue until 2027

The Zhitong Finance App learned that Bank of America pointed out in a research report released recently that with the arrival of the fourth quarter of 2026, the storage cycle will gradually break out of the previous J-type growth stage and enter a new stage of development. This is in line with Micron Technology (MU.US)'s recently announced results and latest guidance: sales for the fourth fiscal quarter of FY2026 increased 31% month-on-month, down from 74% in the third fiscal quarter; the company expects sales growth of only 13.5% month-on-month in the first fiscal quarter of FY2027.

This trend may be used to construct arguments that are bearish on the storage industry, but Bank of America believes there is still a lot of room for upward fundamentals. There are three main reasons: 1) high profit margins — despite a sharp decline in sales growth and rising employee incentive costs, Micron still expects gross margin of 86% in the first fiscal quarter of fiscal year 2027; 2) a low price-earnings ratio (P/E) ratio — even based on projected earnings per share in 2028, the price-earnings ratio of most storage stocks is only 5-7 times; 3) record stock repurchases or cash dividends.

Like Asian memory chip manufacturers, Micron also seems to believe that although more fabs will be put into operation in Asia and the US, the shortage of memory chips may continue to increase until 2027 compared to demand for new chips.

Bank of America said that overall, as long as sales/operating profit can be maintained at 10 times the high of the 2018 and 2021 upward cycles, then the slowdown in growth should not be a cause for concern. Micron's performance and guidelines have provided supporting evidence of this.

Similarities and differences: Micron vs Samsung/Hynix

Bank of America also learned that Micron's six strategies are generally consistent with Samsung Electronics' and SK Hynix's strategies, including: 1) actively giving back to shareholders; 2) increasing long-term supply agreements (LTAs) while further diversifying the customer base, including large technology companies and original equipment manufacturers (OEMs); 3) building new fabs, but wafer capacity expansion is limited due to extended manufacturing cycles; 4) chip supply is still insufficient compared to long-term demand; 5) average selling price (ASP) remains stable, and revenue growth is driven more by sales volume rather than sales Relying on aggressive increases DRAM/NAND price; 6) High emphasis is placed on high-bandwidth memory (HBM). Compared with traditional DRAM, large-scale production capacity expansion was carried out, and at the same time, the increase in ASP for the 2027 annual contract was even more obvious.

However, there are still differences in the profit performance and performance outlook of each company — DRAM ASP for the third quarter: Samsung/Hynix is expected to rise 23%-25%, and Micron is expected to rise by more than ten percentage points; in the third quarter, NAND ASP is expected to rise 15% to 18%, and Micron is expected to rise by about 30%.

In terms of dividend ratio, Samsung currently has 50% of free cash flow (FCF); SK Hynix exceeds 50%; Micron will achieve a 100% dividend rate after reaching a specific target cash holding. This target is expected to be achieved in the November 2026 quarter, while the cash holdings for the August 2026 quarter are US$75 billion;

The share of LTA in long-term sales up to 2030: Samsung is 60%-70%; SK Hynix is over 50%; and Micron is over 35%. Furthermore, in terms of 1c (Gamma) process node migration, Samsung is currently not using DDR5 and still uses HBM4 as the core; SK Hynix is already using it for mainstream production of high-end DDR5; Micron clearly stated that 1c is its largest production process node.

HBM, DDR5 and rush orders drive strong growth in South Korea's semiconductor exports in September

South Korea's semiconductor exports rose sharply in September, up 29% month-on-month and 263% year-on-year. Bank of America believes there are three main driving forces: 1) HBM4 successfully accelerated mass production, which currently accounts for more than 50% of HBM's total sales; 2) DDR5 prices rose more than 20%-30% from the previous quarter despite increasing long-term supply agreements; 3) an increase in rush orders at the end of the quarter, including enterprise solid-state drive (eSSD) /NAND orders.

Looking at export data for July, August, and September combined, it also showed strong growth in the third quarter, with a 30% month-on-month increase. Overall, it is basically in line with Bank of America's predictions for SK Hynix and Samsung's memory chip revenue for the third quarter — the bank expects SK Hynix memory chip accounts to grow 32%, while Samsung grows 27%.

Samsung's preliminary operating profit for the third quarter will be announced on October 8 — Bank of America is expected to be 10.7 trillion won. Supported by strong sales of HBM4, DDR5, and even NAND and rising ASP, this figure is likely to easily meet Wall Street's optimistic consensus expectations of about 11 trillion won.