Southwest: Demand surge & Supply rigidity Storage super growth cycle.

Southwest released a research report stating that against the backdrop of the booming global storage industry, domestic storage enterprises in China are rising at an astonishing speed, relying on the dividend of engineers, sound infrastructure, complete industrial chain support and other advantages. Local companies are achieving rapid growth through independent architecture innovation, process iteration, continuous capacity expansion, steady yield improvement, and comprehensive breakthroughs in AI computing power, consumer electronics, and enterprise markets, driving China's storage industry from scale growth to technology leadership. Southwest's main points are as follows: Demand surge and supply rigidity, price continues to rise, storage ushers in a super cycle 1) The unexpected iterative upgrade of AI large model technology, the explosive growth of global Token consumption, leading to massive data storage, processing, and retrieval needs, has brought about a super boom cycle in the storage industry. 2) Overseas three major manufacturers will tilt limited production capacity towards high-profit HBM and DDR5 products, causing severe pressure on consumer-grade and low-end storage chip capacity, widening the supply-demand gap. 3) After excessive capacity and capital spending in the previous cycle, storage manufacturers in this cycle are cautious in expanding production; and there are issues such as the long construction period of clean rooms for high-end HBM storage chips, difficult yield improvement, making the short-term supply continue to be tight. Against the background of surging demand and rigid supply, according to CFM flash memory market forecast, storage prices are expected to continue to rise overall in 2026. Demand side The fundamental reason for this super cycle is the unexpected iterative upgrade of AI large model technology, bringing about a massive demand for data storage, processing, and retrieval. 1) Thanks to the rapid iteration of generative AI, new applications such as AI agents, multimodal applications, and native video technology are experiencing explosive growth, directly driving up the demand for HBM, DRAM, NAND and other storage media, initiating a super demand cycle for storage. 2) According to Open Router, in February 2026, the global token consumption of major large models was more than 10 times that of the same period 25 years ago, demonstrating extremely strong computing power and storage demand. 3) It is expected that in 2026, the capital expenditure of the eight major CSP manufacturers will grow by 25% to around $500 billion, continuing the high-intensity investment in computing power infrastructure. Supply side Capacity squeeze and cautious production expansion, short-term supply rigidity. 1) Most storage manufacturers operate in the IDM mode with huge capital expenditures. After excessive capacity and capital spending in the previous cycle, storage manufacturers are cautious in guiding production expansion in this cycle. 2) Manufacturers will tilt limited production capacity towards high-profit HBM and DDR5 products, causing severe pressure on low-end storage chip capacity. 3) High-end HBM technology has high barriers and low yields, and the current long clean room construction period cannot keep up with the explosive demand for AI/HBM, with a construction period (8-12 months) far behind demand. 4) Currently, the inventory levels of the three major manufacturers are only 3-5 weeks, at historically low levels, indicating extremely tight supply. Risk Warning Risks of AI development falling short of expectations; risks of storage price decline; risks of R&D progress falling short of expectations.