An analysis by the Financial Times suggests that despite the current unprecedented surge in the memory chip sector driven by artificial intelligence demand, the industry's strong cyclical nature has not disappeared. Over the past six months, SanDisk's stock price has skyrocketed by 1200%, while Western Digital, Seagate Technology PLC, Micron Technology, and SK Hynix have also seen gains ranging from 180% to 280%, making them among the top performers in the S&P 500 index. This rally has raised market concerns that investors may be repeating the mistakes of the 2022 cyclical reversal.
The report identifies AI application-driven storage demand as the core force behind this round of market activity. As memory prices continue to climb, SanDisk has shifted from a cash-burning state in 2024 to generating nearly $1 billion in free cash flow last quarter. However, the memory industry is highly cyclical, characterized by rapid demand fluctuations and lagging capacity adjustments, which often lead to sharp price volatility.
The article cites industry insiders warning that "investors' memories are too short." Historical data shows that from mid-2020 to early 2022, Western Digital, Seagate Technology PLC, Micron Technology, and SK Hynix all experienced stock price increases exceeding 100%, only to give back all gains within the following nine months. Similar sharp fluctuations occurred in 2014 and 2018. The current market optimism is causing people to overlook the lessons of recurring industry cycles.
Hyperscale procurement and capacity expansion could trigger a new round of oversupply. Industry analysis indicates that the current memory market is showing structural risks similar to the 2022 cycle. To secure partnerships with cloud computing hyperscale companies, suppliers often pre-purchase memory chips before obtaining confirmed orders to demonstrate their supply capabilities. However, not all suppliers ultimately secure corresponding contracts, leading to total order volumes far exceeding actual demand.
Simultaneously, hyperscale companies themselves frequently overestimate future demand. If they subsequently adjust order sizes, the resulting excess supply can quickly transform into severe market oversupply. The report references industry sources indicating that order volumes have doubled or even tripled, with production capacity expanding in parallel. Samsung's recent announcement of significantly increasing DRAM production capacity further intensifies potential pressure on the supply side.
Is This Cycle Different?
Although the inherent cyclical risks in the memory industry remain, market analysis suggests that this AI-driven expansion phase might be more prolonged than previous ones. Jonathan Goldberg, an analyst at Digits to Dollars Advisory, stated:
"Looking back at history, looking at the last five years, the market will eventually correct. The amplitude of this cycle is larger, so prices could continue to rise. Many semiconductor investors who weren't in the industry five years ago will say this time is different. But the reality is, the cycle hasn't changed."
On the other hand, technological advancements in High Bandwidth Memory (HBM) are seen as a key variable that could reshape the industry landscape. This specialized high-performance DRAM is currently dominated by Samsung, SK Hynix, and Micron Technology. Ben Bajarin, an analyst at Creative Strategies, pointed out:
"This cycle is largely driven by HBM, which has higher differentiation and won't become a commoditized product in the short term... I believe memory revenue has bottomed out and is recovering."
The current market stands at an intersection of technological iteration and cyclical patterns, where the supply and demand dynamics of HBM will be one of the core factors influencing the duration and shape of this cycle.