Guotai Haitong: Entering the super cycle of storage, focusing on the price elasticity of consumer storage.

Guotai Haitong released a research report stating that the increase in demand for NAND Flash industry is not a short-term market fluctuation, but a long-term industry trend under AI applications. Focus on the long-term industry trend of NAND Flash, the market value of SSD is expected to quickly surpass HDD, and storage is entering a super cycle. The structural shift of original factory production capacity to the server market has affected mobile and PC supplies, the price gap of consumer-grade NAND is expected to quickly narrow and align with enterprise-grade, with consumer buyers mostly passively accepting storage prices, with the potential to contribute higher price elasticity than enterprise storage. In addition, there has been an increase in demand for high-capacity NOR Flash recently, leading to a significant increase in prices. The industry is given a "hold" rating. Guotai Haitong's main points are as follows: The demand for NAND Flash industry is increasing not due to short-term market fluctuations, but as a long-term industry trend under AI applications; original factory capital expenditure strategies are conservative, with high certainty of supply-demand imbalance in 2026E. The rapid increase in demand for AI inference applications has driven the need for real-time access and high-speed processing, leading HDD and SSD suppliers to expand the supply of high-capacity storage products. The capacity expansion of NAND Flash through 3D stacking technology is much faster than HDD. Due to a significant supply gap in the HDD market, NAND Flash original factories are accelerating technological transitions. The bank believes that downstream customers are likely to add more eSSD orders corresponding to NAND Flash, with the market value of SSD expected to quickly surpass HDD. The current surge in demand for NAND Flash in the industry is mainly driven by the rapid increase in storage capacity demand due to AI and the shortage of HDD supply leading to CSP orders, which is a structural shortage rather than a short-term market fluctuation. However, in recent years, the industry has experienced multiple cycles of prosperity, leading original factories to be conservative in capital expenditure and expansion strategies. In 2026, the focus of capital expenditure will be on process upgrades and the introduction of hybrid bonding rather than expansion, leading to limited growth in NAND Flash supply bits, and the continued supply-demand imbalance is expected to last throughout 2026. Consumer-grade NAND price gaps are expected to quickly narrow, with a focus on consumer-grade storage price elasticity. The current storage market upturn is driven by shortages and long lead times for HDD supplies and rapidly increasing CSP storage demands, with the core drive coming from the explosion in demand for server storage. To meet the strong demand for servers, original factories are actively expanding sales of high-margin products such as DDR5, LPDDR5X, HBM3E, and eSSD, with current inventories being rapidly depleted. The original factories will further increase the share of high-margin products applied to the server market, including DRAM and NAND products, with overall supply growth limited. Therefore, looking at Flash Wafer prices, the cumulative price increase in NAND Flash prices in the past two and a half months has been over 50%, with the price of 512Gb TLC NAND Wafer almost doubling. Due to the structural shift of original factory production capacity to the server market, mobile and PC supplies have been affected, the price gap of consumer-grade NAND is expected to quickly narrow and align with enterprise-grade, with consumer buyers mostly passively accepting storage prices, with the potential to contribute higher price elasticity than enterprise storage. There has been an increase in demand for high-capacity NOR Flash, leading to a significant increase in prices. With AI servers moving from HBM3E to HBM4 specifications and increasing stacking layers, the value of NOR Flash per unit has significantly increased, with usage increasing by approximately 50%. Storage manufacturer Macronix has reported full order books and may raise NOR Flash prices in Q1 of next year by 30%. In addition to Taiwanese manufacturers, domestic NOR Flash manufacturers have also started price adjustments, with price increases starting at 10%, and are expected to follow suit with Taiwanese manufacturers in terms of price increases. Risk warning: Storage prices do not increase as expected; downstream demand falls short of expectations.