Memory chip price increases are starting to show signs of slowing down, fueling growing investor concerns that the cycle may have peaked. This time, however, two major memory giants, Samsung and SK hynix, may have found a new defensive strategy: returning more cash to shareholders. Last Friday, SK hynix announced it would unveil details of its shareholder return plan in the third quarter, alongside a dividend of 375 won per share. Industry expectations are widespread that its larger peer, Samsung, will soon follow suit, a sentiment that lifted Samsung shares by 4.1% on Tuesday.

In its second-quarter earnings report on July 30, Samsung stated that its board and management are actively discussing specific measures for this year’s shareholder return policy, including a special dividend. Against the backdrop of AI demand continuously squeezing memory chip supply, both companies have generated robust cash inflows. As memory chip price increases decelerate, stock buybacks and dividend payouts are poised to become the next catalysts for share prices, potentially offering a defensive buffer against the market’s general expectation that earnings growth has peaked.

“Considering the significant share price gains and market discussions about the memory cycle peaking, buybacks will play a key role in supporting stock prices, possibly even attracting more institutional investors back to memory chip stocks,” said Jun Bei Liu, co-founder and chief investment portfolio manager at Ten Cap Investment. “From now on, buybacks and special dividends are expected to become a regular practice for memory companies.”

Rekindling the ‘Peak Fear’ Pattern? Memory Chip Stocks’ Historical Trends and Current Challenges

This shift towards returning cash to shareholders coincides with investors once again confronting an old issue for memory chip stocks: their prices tend to weaken before the actual decline in memory chip prices begins. According to estimates from TrendForce, conventional DRAM contract prices are expected to rise by 58% to 63% in the second quarter of 2026, while the increase in server DRAM will slow to 13% to 18% in the third quarter. Historically, memory chip stocks often weaken even as earnings are still hitting new highs, as the market prices in future earnings revisions long before the financial data itself peaks.

This pattern is confirmed by the valuation pressure on memory companies stemming from fears of peak earnings. Since hitting their year-to-date highs in June, shares of SK hynix and Samsung have fallen by approximately 50% and 34%, respectively, even though both companies have reported record-breaking profits during the same period. Analysts suggest that the contrast between “high earnings growth” and “conservative dividend policies” has led the market to speculate that management may not be confident in the long-term sustainability of the current AI-driven memory boom, a key factor behind the significant share price pullback.

Billions in Cash on Hand, Why Are Shareholder Returns ‘All Talk and No Action’?

The other side of the issue is the immense amount of cash these two companies hold. According to LSEG data, the combined net cash reserves of Samsung and SK hynix are expected to reach $263 billion by the end of this year, more than double the approximate $102 billion held by NVIDIA and exceeding the combined cash of the other six members of the US tech mega-cap group. Brokerages estimate Samsung’s free cash flow this year will be around 200 trillion won (approximately $145 billion), while SK hynix’s free cash flow is projected to reach about 100 trillion won.

Despite holding a mountain of cash, their dividend payouts appear meager. Both companies currently plan to allocate 50% of their free cash flow for shareholder returns. This ratio stands in stark contrast to US memory chip giant Micron Technology, which committed to a 100% payout ratio as early as June this year. This significant gap has fueled discontent among many investors. Pressure from Wall Street is intensifying. JPMorgan previously lowered its target price for SK hynix and explicitly stated that “a clear capital allocation stance is crucial for restoring market confidence.” Richard Clode, a fund manager at asset manager Janus Henderson, publicly called for SK hynix to increase its shareholder return ratio to 80% or higher, arguing that sticking to a 50% payout ratio significantly reduces the efficiency of capital utilization on the company’s balance sheet.

It is against this backdrop that the announcement of SK hynix’s Q3 shareholder return plan, and Samsung’s potential follow-up, carry a significance far beyond a routine corporate filing.

Long-Term Supply Agreements Strengthened: This Time, the Cycle Has a ‘Cushion’

Unlike previous cycles, memory manufacturers now possess a new tool: long-term supply agreements (LTAs). These contracts are expected to make earnings more sustainable, potentially breaking the historical cycle of “one year of profit, three years of loss.” According to disclosures, SK hynix has already signed LTAs with approximately 10 customers. Samsung anticipates that multi-year contracts will eventually cover 60% to 70% of its planned capacity. As of the end of June, Micron Technology had also signed 16 long-term supply agreements. Such agreements significantly improve demand visibility and effectively smooth out the profit volatility that has historically troubled investors. With more stable revenue expectations, the market can better justify valuing memory companies based on “normalized cash flows” rather than just chasing short-term price fluctuations.

Currently, there are no clear signs that the memory chip boom cycle is waning. South Korean customs data shows that chip exports in the first 10 days of August surged 45% year-on-year, indicating robust demand remains. This suggests that even as memory chip price increases slow, the tight supply situation will continue to provide ample cash generation opportunities for producers.

From ‘Price Speculation’ to ‘Cash Return’: The Memory Investment Thesis is Evolving

For a long time, the memory chip industry has been a source of both love and hate for investors due to its strong cyclicality. Now, supported by the long-term structural demand from AI, Samsung and SK hynix are attempting to use shareholder return mechanisms to signal to the market that “earnings are sustainable and cash is shareable.” “As the memory cycle enters a mature phase, capital returns are likely to become the next major catalyst,” said Maxen Vesso, chief investment officer at Dubai-based Arkevium Capital. “In the early cycle, stock prices mainly follow spot price increases and margin expansion. Once these earnings revisions are fully reflected in positions and valuations, simply beating earnings expectations has a diminished impact on stock prices. At that point, investors start focusing on a more tangible question: how much cash is the company actually returning to them?”

Morgan Stanley analyst Shawn Kim recently released a report stating that the focus of the memory chip market is shifting from the price cycle to capital returns, with stock buybacks, free cash flow, and long-term supply agreements (LTAs) poised to become the next wave of stock price catalysts. Kim, who was previously viewed as a “bear spokesman” for warning of short-term memory corrections, now judges that the most severe adjustment in this memory market cycle is nearing its end. He believes current valuations offer an “attractive tactical entry point.” Kim describes this pullback as a “minor ripple within the AI super cycle.” He maintains a long-term bullish stance on both Samsung and SK hynix, projecting earnings growth of 25% to 50% for both companies by 2027, supported by sustained AI capital expenditure expansion and the rapid advancement of Agentic AI.

In short, whether buybacks and special dividends can truly become a “stabilizer” against the cyclical downturn will largely depend on whether these two companies can deliver a shareholder return plan that is more compelling than “50%.” At this very juncture, both giants are using real cash to respond to the market’s anxiety over the “peak of the cycle.”