CITIC SEC: Optimistic about storage investment opportunities in the AI era with a combination of cycles, growth, and domestic resonance.

CITIC SEC released a research report stating that, driven by AI demand, the storage industry is still in the early to mid-stage of a super cycle, with supply shortages expected to continue at least until 2027. Since February, the strong performance and guidance from key companies in the industry, the increase in NAND contract prices for the first quarter, and better-than-expected performance announcements from leading domestic module manufacturers for January and February, have further confirmed the high level of activity in the storage industry. The firm remains optimistic about the unexpectedly high storage demand, expecting the supply shortage situation to continue until the end of 2027. Their core recommendations are: 1) storage module companies, which have strong short-term performance capabilities; and 2) storage design companies, particularly those working closely with original manufacturers. CITIC SEC's main points are as follows: In the AI era, memory bandwidth and capacity upgrades are key, with storage and computing integration being the trend. Near-storage computing is in high demand, and the firm is optimistic about investment opportunities. Their key recommendations focus on four directions within the domestic HBM and CUBE related industry chains: 1) Storage solution providers: CUBE is essential, with custom design solutions aiding industrialization and entry into the high-end market. The firm is particularly interested in leaders with storage original equipment manufacturer support and first-mover advantages. They also focus on companies deploying thin LPDDR stacking solutions. 2) Semiconductor equipment: Supports industry development, benefiting from advanced testing and packaging demand upgrades, process optimization, improvement in yield rates, and accelerating the localization of the supply chain; to benefit from advanced testing upgrades and localization, the firm emphasizes etching, bonding, and thinning equipment. 3) Advanced packaging: A key breakthrough in high-end storage, with high equipment availability. Mainland Chinese manufacturers possess leading capabilities in advanced packaging and expanding capacity. Hybrid bonding is critical for CUBE 2.0, and the HBM industry chain requires advanced packaging companies to provide CoWoS. 4) Logic chip companies: Customers of near-storage computing, with improved competitiveness and accelerated industrialization. Some design companies are actively pursuing 3D structure logic chips, focusing on SoC/NPU for edge computing, gradually moving towards cloud inference cards. Near-storage computing is expected to enhance the performance of logic chip companies, providing a competitive advantage and benefiting from increased AI demand. The firm suggests focusing on leading design companies. Risk factors include: risks of global macroeconomic downturn; lower-than-expected downstream demand; slower-than-expected innovation; risks from international industrial environment changes and trade friction; slower-than-expected progress in computing power upgrades; lower-than-expected capital expenditure by cloud providers; expectations for domestic computing chip shipments; slower-than-expected progress in domestic semiconductor equipment research and development; intensified industry competition; exchange rate fluctuations, etc.