"Chip shortage" reappears! This time, global rush to buy storage chips.

Global chip manufacturers are rushing to produce artificial intelligence (AI) chips, which has led to a tightening supply of traditional chips used in smartphones, computers, and servers. Industry executives and analysts point out that this has not only triggered panic buying by some customers, but also led to a significant price increase. The unexpected chain reaction brought about by this AI boom is providing a timely boost to storage chip manufacturers. Storage chip makers, including Samsung Electronics (SSNLF.US), were already lagging behind competitors in providing advanced AI chips, and the price fluctuations this time have boosted their stock prices. Several executives have stated that the supply of conventional semiconductors has become so tight that with equipment manufacturers stockpiling storage chips like crazy, the global storage chip industry is gearing up to enter what some analysts refer to as a "super cycle." "In the past month or two, demand has surged significantly," said Tobey Gonnerman, President of semiconductor distributor Fusion Worldwide. "The situation has developed much faster than expected." "There is definitely panic buying in the market now, and this situation will only escalate. We are now seeing situations where orders are doubling or tripling, just like we have seen in previous shortages." Capacity shifts causing supply shortages Since the launch of ChatGPT in November 2022, which sparked the generative AI boom and the global race to build AI data centers, storage chip manufacturers have begun allocating more capacity to high-bandwidth memory (HBM) chips used to build powerful AI chipsets for NVIDIA Corporation (NVDA.US). Additionally, competition from Chinese competitors like Yangtze Memory Technologies Co. (YMTC) in the low-end chip sector has become increasingly fierce, prompting Samsung and SK Hynix, which control around 70% of the global DRAM market, to accelerate their transition to high-end chips. "There is a lot of money flowing in the market now, driving demand growth," said Dan Hutcheson, Vice Chairman of research firm TechInsights in San Jose. He was referring to a series of recent technology transactions surrounding chips and data centers. Data from Morgan Stanley shows that major tech companies such as Alphabet Inc. Class C (GOOGL.US), Amazon.com, Inc. (AMZN.US), Meta (META.US), Microsoft Corporation (MSFT.US), and CoreWeave (CRWV.US) are expected to invest $400 billion in AI infrastructure this year. Analysts point out that under this boom, traditional data centers and personal computers are entering an upgrade cycle, and phone sales are exceeding expectations. These factors are exacerbating the supply shortage of non-HBM storage chips and driving up their prices. Currently, traditional data center operators have started upgrading or replacing servers they purchased during the previous boom period of 2017 to 2018. "Six or seven months ago, they still had a lot of DDR5 server memory," Gonnerman said when talking about mainstream server chips, "but now the average selling price of DDR5 server modules is skyrocketing. Obviously, this is good news for Micron (MU.US), Hynix, and Samsung." Furthermore, TechInsights data shows that spot prices for DRAM chips for various devices nearly doubled year-on-year in September, compared to a 4% increase in April. This quarter, the average inventory cycle of DRAM chips has dropped from 10 weeks in the same period last year and 31 weeks in early 2023 to just 8 weeks. Jeff Kim, research director at KB Securities, expects that if the current trend of rising prices continues, the profitability of non-HBM storage chips will surpass that of HBM chips next year. He estimates that in July to September this year, Samsung's ordinary DRAM chip operating profit margin was around 40%, while HBM chips were at 60%. Micron also predicts that by 2026, both HBM and non-HBM chips will achieve considerable profit margins. Negative impact of price increases On the other hand, the soaring chip prices may increase profit pressure on consumer electronics and server manufacturers. Currently, these manufacturers are already dealing with cost increases due to higher U.S. tariffs and potential supply chain disruptions caused by China expanding rare earth export restrictions. "The recent DRAM shortage is so severe that we are increasingly concerned about it," said Miller Chang, President of Industrial Computer Supplier Advantech's Embedded Business Division based in Taiwan. Some companies are passing the cost pressure on to consumers. For example, UK personal computer manufacturer Raspberry Pi announced a price increase earlier this month, citing a storage cost increase of about 120% compared to last year. "Now we have reached a point where we have to pass on some of the costs to consumers," said CEO Eben Upton. Cautious outlook on the "super cycle" The increase in profitability of non-HBM chips has driven up the stock prices of storage chip manufacturers this year. Samsung's stock price has risen by over 80%, while SK Hynix and Micron have seen increases of 170% and 140%, respectively. Due to the shortage of DDR4 chips, the stock prices of Taiwanese storage chip manufacturers and storage module companies have also risen in the past month. However, investors remain wary of signs of an AI bubble. Hutcheson believes that the term "super cycle" is somewhat exaggerated. He stated that the industry is going through a typical shortage period, which usually lasts one to two years. TechInsights predicts a downturn in the chip industry by 2027. Samsung is expected to benefit from its higher investment in non-HBM chips in this current boom. However, investors remain cautious about whether Samsung can quickly narrow the significant gap with SK Hynix in the HBM chip field and with Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSM.US) in the foundry field. "Investor sentiment towards Samsung has shifted from extremely pessimistic to extremely optimistic, but the future development still needs to be seen," said Albert Yong, Managing Partner of Petra Capital Management, based in Seoul.