Memory chip market continues to sizzle! Bernstein: DRAM and NAND prices may rise nearly 20% in Q3, cycle may begin to "normalize" in 2028

Bernstein said in its latest global memory industry report that the current memory chip cycle remains in a high-prosperity phase, with DRAM and NAND supply-demand tightness expected to persist until 2027. The bank expects that in the third quarter of 2026, average selling prices for conventional DRAM and NAND will both rise by nearly 20% quarter over quarter, with further increases still likely in the fourth quarter. However, as long-term agreement (LTA) price caps gradually limit room for further price increases and new capacity is gradually released, the current super cycle is expected to begin "normalizing" in 2028. At the same time, Bernstein lowered its 2027 HBM price increase forecast. The bank believes that some manufacturers are facing difficulties in HBM4 supply, and the transition from HBM3E to HBM4 may be slower than previously expected. It accordingly lowered its HBM price assumptions for SK Hynix (SKHY.US), while expecting Samsung to gain more HBM market share. Even so, continued shortage of conventional DRAM will still support the entire memory cycle at a high level. On individual stocks, Bernstein maintained "Outperform" ratings on Samsung, SK Hynix, Micron Technology, Inc. (MU.US), and SanDisk (SNDK.US). Among them, target prices for Samsung and Micron were maintained at KRW 440,000 and $1,300, respectively; due to more conservative forecasts for HBM progress and pricing, SK Hynix's target price was cut from KRW 3.3 million to KRW 2.7 million. DRAM and NAND prices may rise nearly 20% in Q3, with supply shortages continuing into 2027 Bernstein further raised its short-term conventional memory price forecasts. The report estimates that in the third quarter of 2026, average selling prices for conventional DRAM and NAND will both rise about 15%-20% quarter over quarter. Among them, the DRAM price increase in the third quarter is higher than the previously expected 12%. However, because actual second-quarter price performance was weaker than expected, the overall third-quarter price level forecast is not significantly changed from before. The price forecast chart shows that both DRAM and NAND are in a very strong price-increasing phase of this cycle. More importantly, Bernstein expects that a significant supply shortage may persist until 2027. However, the room for memory chips to continue rising sharply is narrowing. On the one hand, more and more long-term supply agreements include price caps; on the other hand, PC and smartphone customers have already begun reducing finished device shipments, thereby lowering memory procurement demand. Bernstein expects that by the fourth quarter of 2026, the quarter-over-quarter increase in conventional memory prices will narrow to the mid-to-high single digits; after entering 2027, under the constraints of long-term supply agreement price caps, prices are expected to rise only modestly. HBM price increase expectations cut; HBM4 mass production progress becomes a key variable Compared with conventional DRAM and NAND, Bernstein has become more cautious on HBM price trends. The bank lowered its 2027 HBM price increase forecast, with one of the main reasons being that HBM4 supply and mass production progress still face certain difficulties. Bernstein said its July and August Korea memory export tracking data showed that Samsung-related HBM production regions released relatively strong signals, while data from SK Hynix-related production regions was relatively weak. Combined with recent information about HBM4 supply difficulties, the bank therefore slightly delayed its assumed timing for the transition from HBM3E to HBM4 and lowered its SK Hynix HBM price forecast. Bernstein also expects that even in 2027, HBM3E will still maintain considerable shipment volumes and will not be quickly and completely replaced by HBM4. HBM market share forecasts show that Bernstein continues to expect Samsung to increase market share through better HBM4 performance and more capacity. At the same time, the bank expects Samsung's and Micron's blended HBM average selling prices to increase in 2027, but its judgment on SK Hynix's HBM3E and HBM4 price increase magnitude is more conservative. NVIDIA Corporation Rubin Ultra HBM configuration forecast cut; conventional DRAM may instead benefit Bernstein also adjusted its HBM demand forecast for NVIDIA Corporation (NVDA.US)'s next-generation AI chip Rubin Ultra. The bank now assumes that about half of Rubin Ultra chips will be configured with 8-layer stacked HBM, while the other half will use 12-layer stacked HBM, thereby lowering its average HBM capacity assumption from 1024GB to 640GB. However, this does not mean the overall memory supply-demand landscape will weaken significantly as a result. Bernstein believes that the reduced HBM demand can release some capacity for producing more conventional server DRAM. Therefore, although the product mix between HBM and conventional DRAM will affect different suppliers' revenue, profit, and market share, because overall memory demand still exceeds supply, the impact on the industry's overall supply-demand balance is relatively limited. In other words, capacity released by lower HBM demand assumptions may be absorbed by conventional server DRAM, and the overall shortage in the memory market will still persist. The cycle may begin to "normalize" in 2028, but industry margins will remain above historical peaks Regarding the market's biggest concernhow long the memory super cycle can lastBernstein still sees 2028 as an important turning point. The bank expects that as more new capacity enters the market, the current severe supply shortage will begin to ease by then. At the same time, after the scale of AI infrastructure investment continues to expand, it may also gradually encounter constraints related to financing costs, security, the environment, and employment. Bernstein expects memory prices to begin "normalizing" in 2028, but this adjustment may be milder than previously expected. It is worth noting that "normalization" does not mean industry profitability will fall back to the levels of past cycles. Bernstein expects DRAM industry gross margins may reach about 90% at the peak of this cycle, then fall back to the high 70% range by the end of 2028; NAND gross margins are expected to fall back to about 65%. Even so, both will still be higher than the peak levels of previous memory cycles. This means that 2028, as Bernstein forecasts it, is not a "cycle collapse" in the traditional sense, but rather a gradual return from extreme shortage and ultra-high profitability to a more sustainable state. Long-term agreements lock in demand; shareholder returns of memory giants become the next catalyst As this memory cycle has already lasted about a year, Bernstein believes market earnings expectations have largely caught up with industry fundamentals, and room for large upward earnings revisions is diminishing. Therefore, the key factors driving the next phase of memory stock performance may gradually shift from simply "price increases and earnings upgrades" to long-term supply agreements and shareholder returns. The report shows that many memory manufacturers expect that ultimately 50% or even more of revenue or capacity will be covered by long-term supply agreements, and many agreements already include price commitments. Taking Micron as an example, as of June this year it had signed 16 long-term agreements, of which 14 had a total contract value of $100 billion based on minimum prices; SanDisk had signed 8 agreements as of early August with a minimum contract value of $93.9 billion. Bernstein particularly emphasized that attention should be paid to the financial guarantees behind these agreements, because the level of guarantees will directly affect the actual binding force of the contracts. The report shows that Micron's related financial guarantees amount to $22 billion, while SanDisk's amount to $16.5 billion. At the same time, strong free cash flow is creating conditions for memory giants to expand shareholder returns. The report shows that the capital return frameworks of many memory companies all target about 50% or more of cumulative free cash flow. Bernstein believes that as companies further clarify buybacks, dividends, and long-term supply agreement arrangements, investor confidence in the sustainability of this round of earnings is expected to strengthen, thereby driving further expansion of memory stock valuation multiples. After the latest forecast adjustments, Bernstein continues to rate Samsung, SK Hynix, Micron, and SanDisk as "Outperform." Samsung's target price remains KRW 440,000, Micron's target price remains $1,300, and SanDisk's target price remains $3,000. At the same time, due to lower HBM price forecasts and more conservative HBM progress assumptions, Bernstein cut SK Hynix's target price from KRW 3.3 million to KRW 2.7 million.