Author: Chasing Wind Trading Platform, Wall Street Insights
Samsung Electronics and SK Hynix have seen their stock prices significantly decline in recent months, with valuations dropping to extremely pessimistic levels. However, Goldman Sachs believes that the fundamentals do not support such low pricing and has reiterated its buy rating for both companies.
According to Chasing Wind Trading Platform, on August 4, Goldman Sachs' Giuni Lee team published a research report, systematically outlining the market's current eight core concerns regarding the South Korean memory industry, covering topics such as HBM pricing prospects, long-term agreement structures, inventory status, Longsys impact, shareholder returns, and the influence of SK Hynix's US ADRs.
Analysts believe that the concerns mentioned above have largely been over-interpreted by the market, and the actual supply and demand situation still supports high memory prices.
In this context, the stock prices of Samsung Electronics and SK Hynix have dropped by 23% and 35% respectively over the past month, bringing the expected price-to-earnings ratios for both companies in 2027 down to approximately 3.5 to 3.6 times, and the price-to-book ratios to only 1.4 to 1.6 times.
Goldman Sachs pointed out that this valuation level implies extreme market distrust regarding the sustainability of profits for both companies, which is clearly at odds with their actual fundamental conditions.
Focus One: HBM pricing could double by 2027, Goldman Sachs predicts far exceeds market consensus
Goldman Sachs predicts that the average composite price of HBM from Samsung Electronics and SK Hynix will rise approximately 87% and 100% year-on-year by 2027, approaching $2.9 per Gb for both. Specifically, the price increase for similar products is around 60%, with the remainder coming from improvements in product mix.
The core logic supporting this judgment lies in the persistent tight supply and demand.
The report indicated that HBM demand driven by AI servers continues to exceed supply, while the yield of the latest generation of HBM has significantly declined due to more advanced process nodes and higher stacking layers, coupled with a higher conversion rate between HBM and regular DRAM, making the expansion of supply increasingly difficult.
Goldman Sachs expects that the supply-demand gap for HBM in 2027 will be tighter than this year.
Another critical factor is the significant price difference between HBM and regular DRAM.
As of the second quarter of 2026, due to regular DRAM contracts being priced monthly or quarterly, which can reflect market dynamics more rapidly, its pricing has surpassed that of HBM, which is mainly based on annual fixed contracts, resulting in a significant inversion.
Goldman Sachs predicts that the average price of regular DRAM will rise from about $0.5 to $0.6 per Gb at the end of 2025 to about $2 by the end of this year, at which point HBM will inevitably re-establish a price premium, and move closer to the operating profit margin level of regular DRAM.
Goldman Sachs' forecast for SK Hynix's average price of HBM is about $2.9 per Gb, roughly 24% higher than Bloomberg's market consensus.
Based on this calculation, the proportion of HBM revenue in total DRAM revenue for Samsung and Hynix will increase from about 8% and 14% this year to 16% and 22% in 2027, further rising to 18% and 25% in 2028.
Focus Two: Long-term agreement terms more favorable to suppliers
As market expectations for long-term tightness in memory supply continue to strengthen, both supply and demand sides are actively promoting the signing of long-term agreements (LTAs).
Goldman Sachs believes that, based on disclosed content and channel surveys, LTA terms are trending in favor of suppliers along four dimensions: longer duration, broader coverage, more favorable pricing structures, and stronger enforceability.
Regarding duration, most suppliers reported contracts typically last for 5 years, with some customers opting for 3-year terms. Samsung revealed in its earnings call that its LTAs are usually based on a 5-year term, extending by one year each time through a rolling renewal mechanism, theoretically allowing contracts to exceed 5 years.
As for coverage, the target is jumping from 50% to 60% to 70%. Specifically:
SanDisk has signed contracts with 5 customers covering about one-third of shipments for 2027, aiming for 50% as a long-term target;
Micron has signed 16 strategic customer agreements covering about 20% of DRAM shipments and one-third of NAND shipments, with the ultimate goal of LTA revenue accounting for over 50%;
Hynix has stated that about 10 long-term agreement terms negotiations have been completed;
Samsung disclosed that it has signed contracts with the top five data center customers globally and is in final negotiations with five other major customers, expecting the volume of multi-year contracts after signing to reach about 60% to 70% of planned capacity.
In terms of pricing structure, it is evolving towards "price ranges" and "floor price protection" mechanisms.
Micron has explicitly stated that its largest contract contains price upper and lower limits, based on market prices from the second quarter of 2026; even when sold at the floor price, the gross margin is still above historical peak levels.
Samsung further indicated that it will adopt different pricing models based on customer groups and product categories, and set floor prices for general products to hedge against market price volatility risks.
In terms of enforceability, the advance payment mechanism is the biggest highlight of this round of long-term agreement terms compared to past cycles:
SanDisk disclosed financial guarantees (including advance payments) exceeding $11 billion;
Micron expects to receive $22 billion in cash deposits and related financial commitments;
Samsung noted that contracts include large advance payments in the form of deposits, with about one-fourth of total advance payments already received, and the scale of advance payments is expected to expand further with more contracts being finalized.
Focus Three: Elevated inventory levels at module manufacturers do not represent overall industry risks
Recently, concerns have intensified regarding high inventory levels at memory module manufacturers.
Goldman Sachs acknowledges that inventory levels at module manufacturers have indeed increased, especially against a backdrop of weak demand in consumer sectors like smartphones and PCs. However, the key point is that the module manufacturer market only accounts for single-digit percentages of the overall memory market, thus having limited substantive impact on the industry's fundamentals, more so an emotional shock.
From a more critical perspective of suppliers and end customers, inventory conditions are healthy.
As of the end of the second quarter of 2026, Goldman Sachs estimates that the DRAM and NAND inventories of Samsung and Hynix are both within 2 to 4 weeks, down from about 4 to 5 weeks of normal levels, significantly lower than the ten weeks or more commonly seen before previous downturn cycles.
Given that supply growth over the next 12 to 18 months is expected to continue to lag demand growth, this low inventory status is anticipated to persist.
Regarding end customers (especially server customers), even if procurement has been active over the past few quarters, inventory levels are expected to remain within normal ranges, as procured products have generally been directly used for immediate production.
Focus Four: NAND supply and demand will not reverse; server demand is sufficient to offset weak consumer demand
Recent market concerns regarding an oversupply of NAND have intensified, with some bears citing the decline in spot prices as evidence. Goldman Sachs disagrees.
From a supply and demand perspective, Goldman Sachs expects the supply-demand gap for NAND to widen further by 2027. The primary reason is that major suppliers are focusing capital expenditures on DRAM, with NAND's capacity expansion primarily centered on process upgrades rather than wafer capacity expansion; supply growth is expected to continue lagging behind demand in the medium term.
In terms of demand structure, Goldman Sachs estimates that enterprise-level SSD demand will grow from 474EB to 755EB between 2026 and 2028, with year-on-year growth rates of 66%, 31%, and 22% respectively.
Despite some softness in consumer demand, Goldman Sachs states its channel surveys show that enterprise-level SSD demand still has upward potential, sufficient to mitigate pressures from the consumer side.
Regarding the recent weakening of spot prices, Goldman Sachs points out that the declines are primarily concentrated in the specific product category of TLC 512Gb, while other categories, such as TLC 1Tb, remain stable.
Notably, the price of TLC 512Gb has seen a cumulative increase of nearly 600% over the past year, significantly outpacing the over 400% increase of most other products; the current correction is essentially a normal adjustment following a previous significant outperformance.
Focus Five: Goldman Sachs expects actual returns to exceed market expectations
South Korean memory manufacturers failed to provide clear statements regarding specific return plans during recent earnings calls, disappointing some investors.
Goldman Sachs notes that after Japanese memory manufacturer Kioxia announced its shareholder return plan on August 3, its stock price rose by 6% in a single day, while Samsung and Hynix both fell by 9% on the same day, Goldman Sachs believes the divergence between the two is at least partially due to differences in shareholder return expectations.
Nevertheless, Goldman Sachs indicates that both Samsung and Hynix made clear statements during their earnings calls that they are actively reviewing various shareholder return plans.
Samsung's current three-year shareholder return policy is set to expire this year, with a commitment to return 50% of three-year free cash flow to shareholders.
Goldman Sachs believes there is room for the current Bloomberg consensus expected dividend of 8,638 won per share to rise and has updated its own forecast to 9,500 won. SK Hynix's three-year policy covers 2025 to 2027, and Goldman Sachs similarly expects actual dividends to exceed market consensus.
In addition to increasing dividends, Goldman Sachs points out that repurchase announcements will be strongly welcomed by the market, especially given the recent significant decline in stock prices. For Hynix, due to ADR listing leading to share dilution, repurchasing and canceling shares may be an effective means of offsetting the dilution effect.
Focus Six: SK Hynix ADR premium difficult to eliminate in the short term, but helps to repair historical discount
SK Hynix completed its US ADR listing on July 10, and since then, ADR has been trading at a premium to domestic stock prices, averaging about 26%, with the current premium at about 30%.
Meanwhile, the 12-month forward P/E ratio of Hynix’s domestic stock remains about 41% lower than Micron and about 30% lower than Hynix's ADR.
Goldman Sachs attributes this discrepancy in the discount/premium to two points:
First, there are procedural limits to converting between ADR and domestic stocks, leading to a differentiation of investor groups;
Second, the issuance of ADRs is extremely limited, accounting for only about 2.4% of total equity.
Hynix has indicated that ADR can be freely converted to domestic stocks, but converting domestic stocks to ADRs is subject to a conversion cap, and must go through a lengthy regulatory filing process that can take several weeks or longer.
Hynix Chairman Chey Tae-won has expressed an open attitude toward issuing more ADRs. However, referencing TSMC's ADRs, which have maintained a long-term premium, Goldman Sachs believes that as long as there is no substantial improvement in the two-way conversion mechanism, the Hynix ADR premium relative to domestic stocks will persist.
Yet in the long run, the ADR listing provides a direct participation channel for global institutional investors, which helps Hynix gradually narrow the historical valuation discount compared to international peers.
Focus Seven: SK Hynix’s Q2 performance below expectations is a one-time factor, Q3 expected to rebound strongly
SK Hynix achieved revenue of 79.3 trillion won and operating profit of 60.5 trillion won in the second quarter of 2026. The operating profit is roughly in line with Goldman Sachs' projection of 59.1 trillion won, but about 7% lower than Bloomberg’s market consensus expectation of 65 trillion won.
Goldman Sachs believes the main reason for the performance falling short of market consensus is that DRAM average prices did not meet expectations, with an actual quarter-on-quarter growth of about 29%, lower than Goldman’s previous forecast of 39%. The average price of regular DRAM has started to reflect previously locked contract prices with customers, while the average price of HBM is below expectations due to limited progress in the transitioning to HBM4 product mix.
Looking ahead to Q3, Goldman Sachs expects DRAM shipments to grow by about 10% quarter-on-quarter, and average prices to increase by about 19%, mainly benefiting from the ramp-up of HBM4 mass production and capacity expansion of 1c nm DRAM, corresponding to an operating profit forecast of approximately 77 trillion won, roughly in line with market consensus expectations.
Goldman Sachs also points out that compared to some peers who have locked contracts with price caps, Hynix has greater exposure to price elasticity in regular DRAM prices. If prices perform better than expected, the company's upside potential may be more significant.
Focus Eight: The impact of Longsys Storage is limited to the domestic market
With the completion of Longsys Storage's IPO, investor concerns about the impact of Chinese memory manufacturers on the global supply-demand structure have intensified.
Goldman Sachs believes that Longsys Storage's expansion will primarily meet domestic demand, and thus will have a limited substantial impact on the global supply-demand tightness.
From a technological gap perspective, Goldman Sachs cites TrendForce data indicating that Longsys Storage's current mainstream process is equivalent to the 1z node, while Samsung and Hynix are transitioning from the 1a/1b to the 1c node.
From a product structure perspective, about 70% of Longsys Storage's mobile DRAM shipments are LPDDR4(X), while Samsung and Hynix have a proportion of LPDDR5(X) in their mobile DRAMs amounting to 75% to 85%, indicating a clear misalignment in product positioning.
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