Storage Slump, a Nightmare

Original Author: Su Yang

Original Editor: Xu Qingyang

Original Source: Tencent Technology

Overseas memory chip giants have been caught in the storm's eye, with their total market value plummeting by nearly $43 billion overnight on July 28.

In the past trading day, the stock prices of memory leaders like SK Hynix and Micron experienced a "night of terror." Both SK Hynix and Samsung Electronics fell over 13%, wiping out approximately $28 billion in combined market value. On Tuesday in the US market, Micron closed down 8.85%, SanDisk plunged 14.25%, Seagate fell 8.53%, and Western Digital dropped over 6.9%, with a cumulative market value loss of about $14.8 billion.

Tuesday, screens in a trading room at Hana Bank in Seoul displayed the benchmark KOSPI index and the closing prices of Samsung Electronics and SK Hynix stocks.

Public data shows that SK Hynix has retreated approximately 45% to 47% from its June peak, with its market value evaporating by nearly $600 billion. Micron Technology has corrected over 30% from its highs, and Japan's Kioxia has shrunk by nearly half within a month.

In stark contrast to the stock price collapse, these memory giants have just delivered the most impressive earnings reports in their history.

The Logic of Earnings Not Supporting Stock Prices

On July 7, Samsung Electronics released its preliminary Q2 results, posting a single-quarter operating profit of 89.4 trillion Korean Won, soaring 18 times year-on-year, even surpassing the total profit of the three years from 2023 to 2025. However, this stunning earnings report not only failed to lift the stock price but caused Samsung to slump over 10% during trading, dragging the KOSPI index down by nearly 5%.

The same anomaly played out among other giants.

SK Hynix released its Q2 earnings on the 29th, showing revenue of 79.3 trillion Korean Won, a 257% increase year-on-year; operating profit reached 60.5 trillion Korean Won, up 557% year-on-year, with an operating profit margin climbing to 76%.

Micron Technology reported revenue of $41.5 billion for the fiscal quarter ending May 2026, a staggering 346% surge year-on-year. Gross margin soared to 84.6%, and free cash flow hit $17.6 billion. Micron's management even boldly stated, "Demand far exceeds supply capacity, and this boom will continue until 2028."

With fundamentals running red-hot, the stock prices of memory leaders are plummeting. The first clue and a potential trigger are the cross-market pair trading strategies initiated by SK Hynix's ADR issuance in the U.S. — "long US ADRs, short Korean domestic stocks."

Bloomberg cited a report from UBS to clients stating that many global portfolio managers who previously did not include SK Hynix shares listed in Korea in their investment asset classes can now purchase the new SK Hynix ADRs.

"Buying the ADR and selling the Korean common stock from day one looks like a surefire trade," UBS wrote in the report.

Another contributing factor relates to changes in Korean regulation.

On July 16, South Korea's Financial Services Commission suddenly announced stricter regulatory rules for single-stock leveraged ETFs, raising the minimum margin requirement from 10 million Korean Won to 30 million Korean Won and limiting purchases to a maximum of 20 shares per person per transaction.

Nikolaos Panigirtzoglou, an analyst at JPMorgan Chase, pointed out that at the time, the holdings of memory chip leveraged ETFs as a percentage of the relevant companies' market capitalizations were three times that of regular stock ETFs. During the stock price decline phase, the mandatory end-of-day rebalancing mechanism of leveraged ETFs triggered programmatic automatic selling, instantly creating a "capital stampede."

That day, SK Hynix fell another 11%, Samsung slumped over 8%, and the wave of panic quickly swept through Europe and the US.

Looking at a longer timeline, the recent pullback in memory concept stocks is related to concerns over the "imbalance of investment returns" from Silicon Valley giants' AI investments and related capital expenditures.

On July 22, Google released its Q2 report and raised its full-year capital expenditure forecast from $180-190 billion to $195-205 billion. However, its stock price fell both after hours and the next day, primarily because the endless high capital expenditures suppressed free cash flow, creating uncertainty around the return on AI investments. This is also the common problem facing Microsoft, Amazon, and Meta going forward.

Rating agency Moody's also issued a timely warning: The nearly $1 trillion annual AI arms race is forcing cash-rich giants like Google and Microsoft to rely excessively on debt and off-balance-sheet financing. The total direct debt of the six largest cloud service providers has now reached approximately $460 billion.

This means that if the guidance from these tech giants falls slightly short of expectations, the market will reprice the highly sensitive HBM supply chain stocks.

Analyst Kang Jin-seok of Shinhan Securities summarized this, stating, "As investors refocus their attention on the sustainability of the AI investment cycle and the strengthening competitiveness of China's memory industry, the market's risk-off sentiment has been thoroughly ignited."

With all these factors combined, memory concept stocks experienced a "Black Tuesday" on July 28.

Sundeep Gantori, Chief Investment Officer for Equities at Standard Chartered Bank, stated that the current sell-off reflects a broad deterioration in market sentiment towards the semiconductor sector. Some institutions are even predicting in their latest research reports that memory prices will peak in 2027.

"The Big Short": Taking a Clear Bearish Position on Memory

At the height of the market panic, Michael Burry, the real-life inspiration for "The Big Short," publicly disclosed through his personal column that he is aggressively shorting the memory chip sector and continuously increasing his positions.

Reviewing Burry's position-building timeline: On July 2, he established his initial short position in Micron Technology, entering around $1,051.87. On July 25, he increased his shorts on Micron (stock price $933.86) and Nvidia (stock price $210.28), while also establishing a short position on the SOXX Semiconductor ETF.

Burry's heavy bet against memory is primarily based on three points:

First, valuations are severely stretched from their mean. Micron, as the only pure DRAM stock in the US market, has experienced 34 deep corrections of over 30% in its 42-year history. The current deviation of its stock price from the 200-day moving average has hit a record high since 1984, even surpassing the peak of the 2000 internet bubble.

Second, its return on capital is extremely mediocre. Micron's long-term median ROIC (Return on Invested Capital) is only 4%, and its ROE (Return on Equity) is only 7%. Historically, about one-third of its quarters were actually in a state of "capital destruction."

Third, there is a risk of inflated end demand. Burry believes that the strong demand triggered by Nvidia does not entirely stem from genuine end-consumer usage but is an illusion driven by off-balance-sheet financing and capital recycling arrangements. He cites the Bank for International Settlements' (BIS) 2026 annual report as supporting evidence.

"The Big Short" Burry shorting memory stocks

Regarding the recent expansion plans announced by the Korean giants, Burry asserted: This is a "landmark inflection point signaling the transition from boom to bust" for the semiconductor cycle, predicting at least a 30% correction for the entire sector.

However, there are also dissenting voices in the market. Bulls argue that Micron's recently submitted quarterly report is the best in the company's history, with revenue, profit margins, and cash flow all setting records.

Analysis from tech media CoinCentral points out the real logic behind Burry's bet: He is not betting on an immediate collapse of end demand but rather gambling that memory manufacturers' capital expenditures will spiral out of control. Micron's own massive $27 billion capital expenditure is sowing the seeds for the next downturn.

High Stakes and Consequences

Just weeks before the "stampede" occurred, the global memory industry was immersed in an unprecedented "mega-clustering" strategy.

At the AI Summit in San Francisco from July 24 to 25, SK Group signed a long-term agreement with Nvidia worth over $500 billion, securing HBM supply and joint development of HBM4. Combined with partnerships with Microsoft and Anthropic, the total scale amounted to approximately $750 billion.

Simultaneously, Samsung Electronics signed a memorandum of understanding with Broadcom worth up to $200 billion. The combined total of roughly $950 billion in deals from the two companies was hailed by foreign media as the largest-ever long-term supply lock-up in the semiconductor industry.

Around the same time, AMD acquired MEXT in an attempt to use flash memory to "disguise" as DRAM to lower memory costs, and Meta locked in a multi-year NAND supply agreement with SanDisk.

This new round of clustering by Silicon Valley giants failed to positively impact memory concept stocks. Compared to short-term stock price volatility, what truly unsettled long-term capital was a super-industrial plan announced by the South Korean government in late June. Samsung and SK Group will jointly invest 800 trillion Korean Won (approximately $516 billion) to build four new fabs in southwestern Korea, aiming to double memory chip production capacity within five years.

Including supporting investments of 550 trillion Korean Won for HBM packaging hubs and data centers, the total investment scale reaches 1,350 trillion Korean Won (about $880 billion), equivalent to 5% of South Korea's 2024 GDP.

Memory manufacturers ramping up expansion means breaking the "supply discipline" and strict financial prudence maintained by the industry for the past two years.

Over the past two years, memory makers successfully pushed chip prices back to high levels by strictly controlling production and allocating capacity towards high-margin HBM. Now, SK Hynix's capital expenditure for 2026 is expected to jump significantly by 43% to 40 trillion Korean Won, and Micron's capital expenditure for fiscal 2026 has also doubled year-on-year.

Morningstar analyst Jing Jie Yu warned that as these new capacities come online between 2027 and 2028, the industry will inevitably face severe price erosion.

Analytics firm AInvest stated that the manufacturers' expansion is no longer a victory parade driven by AI demand but a replay of the script from the 2022-2023 overcapacity and price crash cycle.

Although building a fab and bringing it online typically takes 18 to 24 months—for example, Samsung's P5 plant is scheduled for mass production in the second half of 2027—the stock market always trades on expectations, not the present. TrendForce also judges that before that, the DRAM supply shortage pattern is unlikely to be fundamentally reversed. However, the stock market trades on expectations, not the present.

It can be said that South Korea's mega-expansion plan shattered the market's illusion of "sustainably high chip prices." The "night of terror" for the memory sector was essentially a disconnect between fundamentals and forward expectations.

Now, the sensitive capital market has begun pricing in the potential supply glut for 2027 well in advance. According to "The Big Short" Burry's expectations, the window between the second half of 2027 and 2028, when the new Korean fabs enter mass production, will be the true test for the memory industry.