JP Morgan: Memory fundamentals remain solid; still bullish on SK Hynix (SKHY.US), Samsung, and Kioxia

JP Morgan: Memory fundamentals remain solid; still bullish on SK Hynix (SKHY.US), Samsung, and Kioxia JP Morgan released a memory industry report noting that memory makers' overall Q3 2026 results were positive, with DRAM prices and HBM4 progress continuing to beat expectations and no short-term signs of NAND price cuts or a downcycle; however, memory stocks have retraced about 45% from their 2026 highs, with valuations now below 3.5x 2027E P/E, as the market continues to waver over AI financing sustainability, HBM downgrades, and cycle-peak concerns. JP Morgan maintains "Overweight" ratings on SK Hynix ADR (SKHY.US), Samsung Electronics, and Kioxia, with target prices of US$260, KRW400,000, and JPY43,334, respectively. Over the next three months, the firm's preference order is SK Hynix ADR, Samsung Electronics, and Kioxia. Q3 results overall positive; a few companies face short-term disruptions The report said memory makers' Q3 2026 results were broadly better than expected: despite FX headwinds, EPS and margins still beat expectations on upward pricing, successful HBM price negotiations, and smooth shipments and deliveries. A few companies saw short-term disruptions: Samsung Electronics lacks an imminent shareholder return arrangement, and Kioxia's Q4 2026 guidance was weak; but JP Morgan views these as temporarySamsung Electronics' shareholder return catalyst should return in January 2027, and Kioxia's Q1 2027 growth should be above seasonal levels and ahead of peers. End-demand signals remain mixed: on B2B, hyperscaler AI capex growth is stable, with consensus expectations for next year revised somewhat higher; on B2C, PC and handset businesses face greater challenges. Nevertheless, JP Morgan believes bottom-up memory supply-demand fundamentals will remain very solid through 2028. DRAM prices beat again; strong Q4 shipment guidance Q3 DRAM prices beat expectations again, with DRAM ASP up 23% QoQ, above JP Morgan's prior expectation of high-teens to 20%, driving modest beats across companies. The incremental surprise came from Q4 bit shipment guidance: memory makers guided double-digit QoQ growth, and the industry may achieve high-20% range YoY bit shipment growth by end-2026. On HBM4, memory makers have begun shipping and expect HBM4 to surpass HBM3E in bits and revenue in Q3 and Q4 2026, respectively. More importantly, after successful price negotiations, makers expect the profitability gap between HBM and conventional DRAM to narrow entering 2027. JP Morgan had previously flagged that aggressive HBM ASP increases could be a double-edged swordboosting memory profitability on one hand while potentially destroying demand on the other; but fully smooth negotiations mean end-customer risk is largely controllable. JP Morgan forecasts a 96% HBM ASP increase in 2027. Makers unanimously said demand will continue to exceed supply beyond 2027, with some even saying memory is effectively sold out for 2027. JP Morgan believes that amid market concerns over AI financing and sustainability, this guidance should ease worries once earnings begin to prove resilient. At the industry level, DRAM supply-demand is expected to remain tight through 2028, with over 75% of FY2027 capacity already locked. No short-term signs of NAND price cuts/downcycle Due to inventory buildup and rising Chinese capacity, the market believes NAND will enter a price downcycle as early as Q4 2026, but JP Morgan believes NAND industry fundamentals are resilient, with no recent signs of price cuts or a downcycle. The report acknowledged that price increases have indeed slowed, but Kioxia's December-quarter guidance miss was mainly company-specific: the September quarter saw pull-ins, with some demand deferred to the March quarter next year. NAND industry bit shipment outlooks diverged: Micron guided up to mid-20% growth in 2027, SK Hynix guided high-teens, which JP Morgan attributes mainly to differences in capacity ramp timing. Structurally, eSSD demand driven by KV-cache offloading continues, and cost-effective NAND solutions will continue to attract cloud service customers for AI model optimization. According to surveys, Chinese NAND makers mainly focus on consumer applications, posing limited threat to international eSSD demand. Long-term agreement (LTA) coverage is expanding In Q3 results, every memory maker expects more customers to be included in LTA contracts in 2027; both Samsung Electronics and SK Hynix expanded their LTA customer base, with some contracts extending beyond 2030. Memory makers generally expect at least 50%+ LTA coverage in 2027/2028; Samsung Electronics is the most aggressive, emphasizing LTA coverage of 60%-70% by 2030. In summary, JP Morgan believes memory fundamentals are solid and prices are expected to remain high in 2027, but near-term catalysts are lacking and the relevant companies' share prices may range-trade; medium-term risk-reward remains attractive, and it maintains "Overweight" ratings on all covered companies, with a three-month preference order of SK Hynix ADR, Samsung Electronics, and Kioxia.