This time it's really different! Storage chips tear off the "cycle" label and enjoy the "AI infrastructure super dividend"

In the just past year of 2025, storage chip stocks and high-end storage product stocks undoubtedly became one of the hottest investment themes in the global stock market. The trend continued in the beginning of 2026 - for example, the leader in data center enterprise SSD storage components, SanDisk (SNDK.US), has accumulated a rise of over 110% since 2026, with a full-year rise of 580% in 2025. Despite the soaring trajectory of the super bull market in 2025, as well as the continued momentum of the bull market in early 2026, global investors did not feel overly anxious about the suddenly high valuations of these storage technology companies. This is because they believe that the unprecedented AI data center construction frenzy is changing the "cyclical nature" of the storage chip field. Since the end of 2024, SanDisk (SNDK.US), Western Digital Corporation (WDC.US), Seagate Technology (STX.US), and Micron Technology, Inc. (MU.US) have become the best performing components in the S&P 500 index. Investors continue to view them as extremely attractive stock allocation objects. Although from a historical comparison of stock prices and valuations perspective, they may appear increasingly expensive, the almost "indefinite belief" in the AI investment theme is making these historical comparisons irrelevant. In the past year of the storage stock bull market, in addition to the three major storage chip original manufacturers SK Hynix, Samsung, and Micron Technology, the stock prices of Seagate, SanDisk, and Western Digital Corporation have all risen by over 200% in 2025. Among them, the leader in enterprise SSD storage systems, SanDisk, saw a staggering rise of nearly 600%. These giant players in the storage chip and product lines have significantly outperformed the US stock market and even the global stock market. The core logic behind the strong rise in the stock prices of these three major storage product giants lies in the fact that the AI data center construction process is not only driving the surge in HBM storage demand, but also causing the migration of storage chip production capacity from consumer electronics-grade to the much more complex manufacturing and testing processes of HBM. The three-tier storage stack in AI data centers (hot tier NVMe SSD, warm tier/nearline HDD, cold tier object and backup) is also expanding exponentially, and the HDD industry's supply restraint, the NAND cycle rebound, and cloud service providers' long-term locking of quantities have all led to a simultaneous sharp increase in visibility of prices, volume, and orders for these three companies. As shown in the above graph, storage chip stocks and storage-related technology stock prices continue to soar - the incredibly strong demand associated with AI training/inference is driving the robust growth of this group. The data in the chart summarizes the percentage increase up to July 21, 2025. Whether Alphabet Inc. Class C's massive TPU AI computing clusters or NVIDIA Corporation's massive AI GPU computing clusters, they both require fully integrated HBM storage systems carrying AI chips, and current tech giants accelerating the construction or expansion of AI data centers must purchase servers-level DDR5 storage and enterprise-level high-performance SSD/HDD. Samsung Electronics, SK Hynix, and Micron Technology, Inc. and the three major storage product leaders are all focusing on or centered on some specific subcategories in the three core storage areas: HBM, server DRAM (including DDR5/LPDDR5X), and high-end data center level SSD/HDD. They are the most direct beneficiaries in the "AI memory + storage stack," eating up the "super dividends" of AI infrastructure wave. On Wall Street, Morgan Stanley, Nomura, and Bank of America Corp. are hailing the arrival of the "super cycle of storage chips" driven by the AI boom, and the intensity and duration of this cycle may be far stronger and longer than the "super bull market driven by the cloud computing era" in 2018. The global enthusiasm for storage chips driving the benchmark stock index of the Korean stock market - the Kospi Index - surged by 76% in 2025, making it the wildest stock market in 2025 globally. This was mainly due to the surging momentum of the two heavyweights in the global storage chip industry, SK Hynix and Samsung Electronics, with the two storage chip giants contributing nearly half of the total rise. On January 22, 2026, the Kospi Index even surpassed the epic level of 5000 points and hit a new all-time high, also benefiting from the strong rise of SK Hynix and Samsung Electronics, the two heavyweights in the storage chip field since the beginning of this year. Japanese SSD solutions manufacturer Kioxia announced on Thursday that its NAND flash production capacity for 2026 had been sold out, and it is expected that the tight supply situation of NAND flash will continue at least until 2027. A recent research report on the storage chip industry released by the financial giant Nomura Securities shows that under the strong resonance and driving force of the accelerated construction of global AI data centers, the demand for enterprise-level high-performance server-level DRAM + HBM storage systems + data center high-performance SSD is increasing rapidly. As a result, the slope of the rise in DRAM/NAND storage chip prices has become steep. Analysts from Nomura also judged that this "super cycle of storage chips" that started in the second half of 2025 will last at least until the end of 2027, and meaningful new supply is not expected to appear until early 2028 at the earliest. Nomura stated that investors should continue to overweight the storage leaders in 2026, and take the "price-profit-valuation" trifecta of storage chips as the main investment line for storage in 2026, rather than just focusing on storage as an HBM single theme. The institution expects the profits of the three major storage chip companies to reach historical highs. The demand for DRAM/NAND storage chips continues to be strong, and the prices of these storage product series (such as DDR4/DDR5/enterprise-level SSD series) are showing brutal expansion tendencies mainly due to the surge in AI computing power demand and the ever-increasing importance of storage chips for AI training/inference systems. The global demand for AI computing power is showing exponential growth, while the supply of computing power is far behind the demand intensity. This can be clearly seen in the incredibly strong performance data announced last week by the "Global Chip King," Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSM.US). Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR broke the 60% gross margin rate in the fourth quarter, with net profits greatly exceeding expectations. It is expected that the full-year revenue growth rate in 2026 will be close to 30%, and the capital expenditure guidance for 2026 will be significantly raised to 52-56 billion US dollars. These two core indicators are far beyond market expectations. In addition, the management of Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR has substantially increased the compound annual growth rate expectation for chip foundry revenue associated with AI chips from the original "mid-40s" to "mid-to-high 50s." The performances and future guidance of this global giant in chip manufacturing have driven a collective surge in chip stocks on the US stock market in recent times, especially for storage chips and semiconductor equipment, which have shown the strongest upward trend. This time is different! AI is reshaping the global storage chip market, tearing off the typical label of "cycles" with force "The whole cycle script on how to view storage cycles has been torn apart," said Joe Tigay, portfolio manager at Equity Armor Investments. "This is a Shanghai New World - the bottom is clearly higher, meaning that expensive stock prices and valuation trends will be more sustainable than in previous cycles. The world's largest tech companies, with unimaginable deep pockets, will fiercely compete for storage products for a considerable period." SanDisk, a leader in SSDs, has seen its share price soar since its split from Western Digital Corporation last year, with a strong start to 2026 and a rise of 111%. However, the stock is currently trading at an estimated earnings multiple of 23 times, which is still lower than the similar valuation multiples of about 25 times for the Nasdaq 100 index, which is mainly tech stocks. Seagate's valuation multiple is around 24 times, and the stock of the only storage chip manufacturer in the US, Micron Technology, Inc., despite a significant 36% increase in January, remains one of the cheapest 10 stocks in the Nasdaq 100 index based on expected price-earnings ratios, with an estimated price-earnings ratio of less than 11 times. For most companies, these valuation levels are not considered "outrageously high." However, due to the cyclical nature of storage chip/storage product stocks, they have historically received relatively low market valuations. However, from the perspective of other valuation metrics or technical indicators, these storage stock prices and valuations do indeed appear expensive. SanDisk, Micron, and Western Digital Corporation's "14-day relative strength index" (14-day RSI) is at a level that technical traders consider significantly "overbought," and Seagate is also approaching this "overbought" technical indicator. The stocks of the three major storage chip manufacturers - Samsung, SK Hynix, and Micron Technology - and the stocks of storage product leaders such as SanDisk and Seagate have historically been closely related to the prosperity and downturn cycles in the industry. For a long time, the demand for storage products in the market has been highly dependent on the personal computer industry, and more recently on the smartphone business. The short-term, dramatic fluctuations in these consumer electronics markets have made it difficult for storage chip/storage product manufacturers to pinpoint the specific timing for adding new supply, resulting in long-term oversupply. Due to the aggressive Fed rate hikes hitting consumer electronics demand and the rare stockpiling trend during the pandemic, Micron remained in the red in 2023, while Western Digital Corporation and Seagate continued to incur significant losses in 2023 and 2024. The "cyclical nature" has significantly suppressed the trend of valuation multiples expansion in the past, mainly because investors expect a sharp decline in profits after the uptrend. However, with the emergence of AI big models and applications such as ChatGPT, the demand pattern for storage chips has fundamentally changed: the world's largest tech companies are actively investing in the construction of large-scale infrastructure for this technology, and storage chips and other storage component products are essential components of it. This backdrop is expected to continue at least until 2027, driving accelerated market growth and sustained price increases; an index measuring the spot price of DRAM chips has risen sharply in recent months. As shown in the graph above, the prices of various types of computer storage chips continue to soar, especially the spot price of 16GB DDR5 memory modules for enterprise storage, which has seen the most intense increase. "This time is indeed different," said Francisco Jeronimo, an analyst from IDC, who describes the rising prices of storage chips/products faced by some hardware manufacturers as a "crisis." "This is not a normal cycle. This is a profound and long-lasting change that may last for two to three years." Although the phrase "this time is different" is often associated with market tops, Jeronimo believes that the crucial role of storage chips in AI infrastructure construction may permanently raise the bottom of storage chip/product prices. "Even if the AI bubble bursts, or if AI storage demand slows down, I don't think prices will return to the levels of six months ago," he said. The market is still underestimating storage demand! Wall Street's bullish sentiment for storage chips is becoming increasingly crazed This senior analyst from IDC is not the only senior market person who is so optimistic. BNP Paribas raised its rating on Seagate stock to "outperform the market" last Wednesday, and the firm's analyst Karl Ackerman believes that "strong data center storage demand may drive a new cycle of upward trends to last longer than we initially expected" with "stronger and more solid confidence," and therefore it is "very reasonable to re-rate Structurally valued over 20 times for Seagate and Western Digital Corporation." Wall Street analysts are becoming increasingly positive about the fundamentals and prospects of core companies related to storage chips/storage products. Bloomberg's data shows that in the past three months, Wall Street analysts' consensus expectations for SanDisk's earnings per share in 2026 have reached a record high, with a rise of 172%, while revenue expectations have been raised by over 21%. Micron's expectations have also been significantly raised by analysts. Nomura's latest assessment shows that the firm reiterates that this "super cycle of storage chips" will last until at least the end of 2027, with "meaningful supply increases no earlier than 2028." The report repeatedly emphasizes that the expansion of storage chip and HDD/SSD storage component production is not a "say and do" affair, involving the pace of upgrading greenfield/brownfield/customized semiconductor equipment. For example, in the case of SK Hynix, Nomura precisely breaks down the capacity constraints to the aspects of clean room long cycle/wafer capacity, delays in yield due to advanced process upgrades, and restrictions on the construction/upgrading of overseas chip factories, thus inferring a slower supply increase and a longer gap in duration. Analysts from Citi Group are more aggressive in their bullish stance on storage chips in their latest outlook. They believe that driven by the popularization of AI agents and the surge in AI CPU memory demand, storage chip prices will experience uncontrolled rises in 2026. Citi's analysts have revised the expected price increase of DRAM's average selling price (ASP) in 2026 from an original violent increase of 53% to an 88% surge, and the expected increase in NAND has been revised from 44% to 74%. Citi's analysts predict that driven by the dual push of AI training and inference demand, the ASP of server DRAM in 2026 will surge by 144% YoY (previously predicted as +91%); taking the mainstream product 64GB DDR5 RDIMM as an example, Citi predicts that its price will reach $620 in the first quarter of 2026, a 38% increase from the previous forecast of $518. In the NAND field, Citi's forecasts are equally aggressive, with the ASP increase in 2026 being revised from +44% to +74%; among them, the ASP of enterprise-level SSD is expected to increase by 87%. In the view of Citi's analysts, the storage chip market will enter an extremely fierce seller's market, where pricing power will be fully controlled by giants such as Samsung, SK Hynix, Micron, SanDisk, and others. Divya Mathur, the emerging market stock fund manager at ClearBridge Investments, recently stated that storage chip stocks and high-end storage product stocks are the most worth investing in the global stock market, emphasizing that the market clearly continues to underestimate the intensity of demand for storage chips due to the AI infrastructure boom. Divya Mathur's ClearBridge SMASh series emerging market stock investment fund, based on institutional compiled stock fund data, outperformed over 97% of similar funds in the past year. This stock fund has heavily bet on the storage chip giants Samsung Electronics, whose stock price doubled in 2025, and SK Hynix, whose stock price almost quadrupled in 2025. Mathur believes that this bull trend will continue for the long term, saying that the AI wave will permanently reshape an industry like chips that has long been considered cyclical and commoditized. "Since the semiconductor era, the storage chip industry has never been built for data storage demands in the AI field - but in the past year or so, we have seen this new growth DRIVE," said Mathur, who is one of the portfolio managers at the global asset management giant Franklin Templeton and co-manages this $1.4 billion emerging market stock investment fund. Since 2015, he has held these two storage chip stocks for the long term and has become more confident and long-term about them. "In addition, from the information I have gathered, some US tech customers have said that the storage industry is currently only in the second year of a ten-year super upgrade cycle," he said in a media interview. "However, the scale of the unprecedented price surge in the storage sector in the last few years is enough to make investors wary," said Mark Bronzo, Chief Investment Strategist at Rye Strategic Partners. He agrees that storage chip/storage product prices will continue to remain strong, supporting their profit base. The fundamentals look so strong that I don't know who would be a seller. As long as they see weakness, I believe any pullback will be completely covered by buying on dips.