CMSC: Long-term contracts highlight scarcity and continuity, and industry prosperity is expected to continue until 2027.

CMSC released a research report stating that the storage industry has entered a structural super cycle driven by AI. In the first quarter of 2026, global storage companies achieved record-high performance, and the shortage of supply and demand is expected to continue until 2027 or longer. In terms of prices, recent spot prices have caused short-term disturbances but have not changed the upward trend in contract prices, which does not imply a reversal in storage prices. As storage manufacturers gradually sign multi-year strategic agreements, their performance visibility will significantly increase. At the same time, storage products are accelerating from standardization to customization, and the industry's commoditization attributes and cyclical fluctuations are expected to weaken further. It is recommended to pay attention to overseas storage/domestic module/niche storage, and upstream equipment/material companies in the industry chain. The main views of CMSC are as follows: Demand side The demand for storage driven by AI reasoning has increased structurally in a full-stack manner, and the trend towards customization may weaken the industry's cyclical attributes. AI evolves in three stages: reasoning, Agentic AI, and Physical AI. With the total capital expenditure of nine major global CSPs forecast to reach approximately $830 billion in 2026 (up 79% year-on-year), HBM/Server DRAM/eSSD/HDD full-stack demand growth is driven by AI reasoning. Among these, AI reasoning has become a core driver, with the NAND bit demand for data center AI reasoning from 2025 to 2031 growing at a CAGR of 56%. Additionally, new architectures such as HBM4 with base die using logic processes, CXL/SOCAMM/3DDRAM/HBF continue to emerge, and storage products are accelerating from standardization to customization. Industry barriers are increasing, and the commoditization attributes and cyclical fluctuations of storage are expected to weaken. Supply side In 2026, original factory capital expenditures increased significantly, with HBM squeezing out limited effective new supply of DRAM/NAND. According to SemiAnalysis, in 2026, there was a 7% shortfall in DRAM supply compared to demand, a 6% gap in HBM, increasing to 9% in 2027. Yu Zhanyu expects an 8% gap in DRAM and about a 5% gap in NAND in 2026. Although the capital expenditure of the three major original factories increased significantly year-on-year in 2026, the new wafer capacity is highly concentrated and mainly allocated to HBM, almost entirely concentrated on Samsung P4, Micron M15X, and Intel A3, with M15X and A3 mainly used for HBM production. NAND has almost no actual wafer increment, with bit growth mainly relying on technology upgrades. In addition, Kioxia's announcement of the halt of 2DNAND production in 2028 will further tighten supply. The contribution of other expansion projects (such as the Micron Longren and Micron copper projects, and the addition of Bordeaux and Idaho) will not be significantly effective until after the second half of 2027, with overall limited effective new supply. Inventory side Original and niche factory inventories continue to run down, with DOI declining, and module factories actively increasing inventory to lock in supply capabilities. Original factories Samsung, Micron, Hynix, and Western Digital maintained low inventories in the first quarter of 2026, with Micron DRAM inventory turnover days falling to below 120 days. SanDisk actively stocked to support a new NBM agreement, with a 14% increase in inventory, and a significant decline in DOI compared to the previous quarter. Taiwan's module factories (Unigroup, Jiguang, Shisan, etc.) accelerated stocking and signed LTAs to lock in orders, while niche manufacturers (Huabang, Wanghong, Jinhaoke) saw a decline in DOI; mainland China's Shenzhen Longsys Electronics, Shenzhen Techwinsemi Technology, and Bawei module factories collectively reached a new high of 42.22 billion yuan in inventory in the first quarter of 2026, increasing for five consecutive quarters, with mainland niche manufacturers' inventory growth rate significantly lower than that of module factories, and DOI continues to improve. Price side Spot prices are experiencing short-term disturbances, but the upward trend in contract prices remains unchanged. NAND contract prices outpaced DRAM in the second quarter. From an index perspective, the DXI, DRAM, and NAND price indices all reached a peak in early to mid-April before falling slightly, with decreases of 0.4%, 2.7%, and 5.3% respectively. In terms of spot prices, DDR4 16Gb monthly returns fell significantly, and NAND spot prices fell by 30-40% over the past month, mainly due to a previous sharp increase in prices resulting in a reluctance of buyers to accept, coupled with a decrease in price realization pressure on some traders due to reduced turnover. However, the upward trend in contract prices remains unchanged. TrendForce predicts that in the second quarter of 2026, traditional DRAM contract prices will increase by 58-63% on a month-on-month basis, and NAND contract prices will increase by 70-75%. The leading increase in NAND prices is driven by factors such as the sustained strong demand for AI/data centers, original factories preferentially meeting high-value categories, and CSPs proactively signing LTAs to lock in quantities. Short-term adjustments in spot prices are temporary disturbances and do not signify a reversal of the storage price trend. Sales side Long-term agreements continue to strengthen performance visibility, and the shortage of supply and demand is expected to continue until 2027 or longer. At the original factory end, Samsung, Hynix, Micron, and Western Digital achieved record-breaking revenues and gross margins in the first quarter of 2026, with DRAM ASPs up by mid-60% quarter-on-quarter and NAND ASPs up by mid-70%. All original factories have actively promoted multi-year strategic agreements with customers (SAC/NBM/LTA). Micron successfully signed its first five-year SCA agreement, SanDisk signed five NBM agreements covering over a third of its bit production through 2027, and including over $11 billion in financial guarantees. Western Digital and Seagate's LTAs have been extended to 2028-2029, significantly improving performance visibility and stability. Taiwan and mainland China have also benefited across the board, with single-month revenues in March/April reaching historic highs. Taiwanese niche manufacturers are running at full capacity, with contract prices increasing significantly, especially for products like eMMC. Module factories have seen a record-breaking quarter with increased revenues driven by high-capacity AI-driven demand, and it is widely believed that shortages will continue until 2027. In mainland China, niche manufacturers such as GigaDevice Semiconductor Inc., Puya Semiconductor (Shanghai) Co., Ltd., Dosilicon Co., Ltd., Ingenic Semiconductor, saw significant growth in revenue and profit in the first quarter of 2026; Shenzhen Longsys Electronics, Shenzhen Techwinsemi Technology, Biwin Storage Technology, all achieved record-high revenue and profit in the first quarter of 2026, with an average monthly profit of about 1 billion yuan, significantly increasing their profitability. As overseas major manufacturers gradually exit the 2DNAND and niche DRAM markets, mainland manufacturers are expected to continue to expand their market share. Investment recommendations The performance of companies in the storage industry chain in the first quarter of 2026 has been impressive, and the landing of legally binding long-term agreements provides significant security for the performance visibility and growth of storage companies. With the continued intensification of storage shortages, it is difficult to significantly increase supply in a short period of time. It is expected that the supply-demand gap will continue until 2027, and the upward trend in storage contract prices will also continue. The core focus going forward will be on the market price trends and the sustainability of growth in the various segments of companies. It is recommended to pay attention to companies related to the core segments of storage, equipment, and industry chains: 1) Overseas storage: SanDisk, Micron, SK Hynix, Samsung, Western Digital, Seagate, Kioxia, etc.; 2) Domestic original factories: Changxing Technology (IPO in progress), Yangtze Memory; 3) Modules: Shenzhen Longsys Electronics, Biwin Storage Technology, Shenzhen Techwinsemi Technology, Dapuwei, Netac Technology, etc.; 4) Niche storage: GigaDevice Semiconductor Inc., Puya Semiconductor (Shanghai) Co., Ltd., Ingenic Semiconductor, Dosilicon Co., Ltd., Zbit Semiconductor, Inc., Giantec Semiconductor Corporation, etc.; 5) Outsourcing and testing: Semiconductor Manufacturing International Corporation, Huahong Semiconductor, JCET Group Co., Ltd., TongFu Microelectronics, Tianshui Huatian Technology, Union Semiconductor, Shenzhen Kaifa Technology, etc.; 6) Storage equipment: NAURA Technology Group, Advanced Micro-Fabrication Equipment Inc. China, Piotech Inc., Hwatsing Technology, Jiangsu Leadmicro Nano Technology, Kingsemi Co., Ltd., Wuhan Jingce Electronic Group, Skyverse Technology, Sidea Semiconductor Equipment, JHT Design Co., Ltd., Shenzhen SEICHI Technologies, Maxone Semiconductor, ASMPT, etc. 7) Storage materials: Konfoong Materials International, Thinkon Semiconductor Jinzhou Corp., Hubei Dinglong, Hubei Sinophorus Electronic Materials, Shanghai Sinyang Semiconductor Materials, Anji Microelectronics Technology, JiangSu Aisen Semiconductor Material, etc. Risk warning: AI computing power capital expenditures fall short of expectations, inventory impairment risks, international trade frictions and supply chain fluctuations, increased industry competition, exchange rate fluctuations, risks of price declines.