South Korea's government-led plan to build a large-scale memory chip manufacturing cluster has sparked market concerns about a peak in the memory cycle, but Bank of America analysts believe this worry is significantly overblown, as the fundamental outlook for the sector remains robust.

The South Korean government plans to invest 800 trillion won to establish a new memory chip manufacturing cluster in the country's southwest region, such as Gwangju. Some investors have interpreted this as a signal that the current memory upcycle is nearing its end. However, according to analysts at Bank of America Securities led by Simon Woo, the cluster is not expected to contribute meaningful chip production capacity until 2033. It is a long-term initiative following the focus on expanding the Yongin/Pyeongtaek cluster (2026-2035), and its impact on near-to-medium-term supply and demand dynamics is expected to be minimal.

Meanwhile, spot and contract prices for memory chips continue to strengthen. South Korea's semiconductor exports surged to $44.8 billion in June, a 21% month-over-month increase and a massive 199% year-over-year jump, marking the sixth consecutive month of triple-digit annual growth.

TrendForce has also significantly raised its forecast for third-quarter DRAM average selling price (ASP) growth from a previous range of 3-8% to a new range of 13-18%. These data points indicate the memory industry remains in a strong phase characterized by rising volumes and prices, with little data to support claims that the cycle has peaked.

Factory Plan's Capacity is Far Off, Near-Term Fears Overblown

The government's 800 trillion won memory cluster plan is the direct catalyst for the current market anxiety. Bank of America analysts emphasize, however, that this is an ultra-long-term strategic plan not expected to yield substantive chip output before 2033.

From a timeline perspective, the near-term expansion focus for South Korea's memory industry remains centered on the existing clusters in Yongin and Pyeongtaek, with a planning cycle from 2026 to 2035.

The construction of the new southwestern cluster belongs to a later phase, and its impact on the global memory supply landscape is unlikely to materialize until after the current cycle concludes. Therefore, Bank of America Securities sees no signs yet of a capital-expenditure-driven peak in the memory cycle, with enterprise chip demand (including HBM, SOCAMM, and enterprise SSDs) remaining strong and diversified.

Price and Export Data Confirm Upward Cycle Momentum

Trends in spot and contract prices provide strong evidence of the memory sector's robust fundamentals.

According to DRAMeXchange data, the spot price for 16Gb DDR5 reached a historical high of $47 in early July, more than three times the previous peak of around $10 in October 2017. The spot price for 16Gb DDR4 also remains near its cycle high of around $75, representing an approximate 2000% cumulative increase from its low of about $3 in October 2025.

For NAND, the contract price for 512Gb wafers is currently around $25, roughly ten times the bottom of $2.5 in February 2025. Although NAND spot price gains moderated between April and June, they have still accumulated an increase of over 50% since the beginning of the year.

South Korea's export data corroborates this trend. June semiconductor exports reached $44.8 billion, more than triple the monthly average of approximately $14 billion in 2025, with the year-over-year growth rate maintaining triple digits for six consecutive months. TrendForce's latest forecast shows the expected third-quarter DRAM ASP increase has been significantly revised upward, while the fourth-quarter NAND ASP growth expectation has also been raised from a previous 8-13% to 10-15%. Bank of America's own projections indicate DRAM ASPs will grow sequentially by 53%, 17%, and 7% in the second, third, and fourth quarters respectively, with corresponding NAND increases of 65%, 13%, and 1%.

Hyperscale Cloud Capex Continues to Expand, Demand Side Secure

On the demand side, Bank of America Securities expects the combined capital expenditures of the four major US hyperscale cloud providers—Amazon, Microsoft, Alphabet, and Meta Platforms, Inc.—to grow approximately 80% year-over-year in 2026 to around $700 billion, potentially approaching $1 trillion in 2027-2028. Overall revenue for these companies is projected to maintain a 15-20% annual growth rate from 2026 to 2028, with cloud business revenue growth staying in the 35-40% range. AWS's operating margin is above 35%, while Azure's exceeds 40%.

Memory chip manufacturers generally believe Meta Platforms, Inc. will continue to increase its procurement of high-end memory products like HBM, LPDDR5, and enterprise SSDs for AI data center construction. Some AI supply chain companies (e.g., NAND controller IC suppliers, substrate material manufacturers) also report that Meta Platforms, Inc.'s long-term chip and component orders are steadily strengthening. Previous market rumors about "Meta leasing out surplus AI servers" are viewed by chipmakers as lacking substantiation.

Industry Supply Chain Broadly Optimistic on Supply-Demand Outlook

Bank of America analysts visited Japan this week to meet with local investors and NAND supply chain companies, with the overall findings leaning optimistic.

Company management generally provided positive performance guidance, including: second-quarter ASPs (especially for NAND) exceeding expectations; sequential ASP increases continuing into the third and fourth quarters; potential supply shortage risks for both DRAM and NAND in 2027; ongoing expansion in long-term agreement (LTA) signings (though still quantity-focused); and Japanese NAND manufacturers maintaining disciplined capital expenditure and production controls.

Japanese investors are generally bullish on the memory sector but frequently inquire about potential downside risks under the current strong growth, reflecting market focus on cycle sustainability.

Samsung Q2 Results May Slightly Miss, Memory Business Still Shines

Samsung Electronics' preliminary second-quarter operating profit (expected to be announced on July 7) may slightly miss market consensus due to special bonuses (including some from Q1) and pressure on smartphone business margins.

However, Bank of America Securities notes that if calculated separately, the memory division's operating profit is likely to exceed market expectations, supported by better-than-expected ASP performance. This aligns with South Korea's strong semiconductor export data.