storage crash, a night of shock

Original Author: Su Yang

Original Editor: Xu Qingyang

Original Source: Tencent Tech

Overseas storage giants are deeply caught in the eye of the storm, with their combined market value plummeting nearly $43 billion overnight on July 28.

In the past trading day, the stock prices of storage leaders like SK hynix and Micron experienced what can only be described as a "night of terror." Both SK hynix and Samsung Electronics saw drops exceeding 13%, wiping out a combined market cap of approximately $28 billion. On Tuesday's US market, Micron closed down 8.85%, SanDisk plunged 14.25%, Seagate fell 8.53%, and Western Digital dropped over 6.9%, erasing a total of about $14.8 billion in market value.

Tuesday, screens inside a trading room at Hana Bank in Seoul display the benchmark KOSPI index along with the closing prices of Samsung Electronics and SK hynix stocks.

Public data shows that SK hynix has retraced approximately 45% to 47% from its June high, with nearly $600 billion in market value evaporated. Micron Technology has corrected over 30% from its peak. Japan's Kioxia has nearly halved in value within a month.

In stark contrast to the stock price crash, the storage giants have just reported their most impressive earnings results in history.

The Logic Where Earnings Can't Support Stock Prices

On July 7, Samsung Electronics released its preliminary second-quarter results, posting a quarterly operating profit of 89.4 trillion Korean Won, a staggering 18-fold increase year-on-year, even surpassing the combined profit total for the three years from 2023 to 2025. However, this seemingly stellar earnings report not only failed to lift the stock price but instead caused Samsung to plummet over 10% intraday, dragging the KOSPI index down by nearly 5%.

This same anomaly played out for other industry giants.

SK hynix released its second-quarter financial report on the 29th, showing revenue of 79.3 trillion Korean Won, a 257% increase year-on-year; operating profit of 60.5 trillion Korean Won, a 557% increase year-on-year; and an operating profit margin climbing to 76%.

Micron Technology reported quarterly revenue of $41.5 billion for the period ending May 2026, a massive 346% surge year-on-year, with gross margins soaring to 84.6% and free cash flow reaching $17.6 billion. Micron management even boldly stated, "Demand far exceeds supply capacity, and this boom will continue until 2028."

While fundamentals are red-hot, the stock prices of storage leaders are plunging. The first clue and potential trigger is the cross-market arbitrage trade sparked by SK hynix's ADR issuance in the US – "going long on the US ADR and shorting the Korean underlying stock."

Bloomberg, citing a UBS report to clients, noted that many global portfolio managers who previously did not include SK hynix stocks listed in Korea in their investment asset classes can now purchase the new SK hynix ADRs.

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

Another catalyst relates to regulatory adjustments in South Korea.

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

JP Morgan analyst Nikolaos Panigirtzoglou pointed out that at that time, the holdings of leveraged storage chip ETFs relative to the market capitalization of the related companies had reached 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 "liquidity stampede."

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

Looking at a longer timeframe, the recent pullback in storage concept stocks is also linked to concerns in Silicon Valley about the "imbalance in return on investment" from AI spending and related capital expenditures.

On July 22, Google released its Q2 earnings and raised its full-year capital expenditure guidance from $180–190 billion to $195–205 billion. However, its stock price fell both after-hours and the following day, primarily due to relentless high capital outlays suppressing free cash flow and the uncertainty of returns on AI investments. This is a shared challenge for Microsoft, Amazon, and Meta moving 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 over-rely on debt and off-balance-sheet financing. The combined direct debt of the top six cloud service providers has now reached approximately $460 billion.

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

Shinhan Securities analyst Kang Jin-hyuk summarized this situation, stating, "As investors redirect their attention back to concerns about the sustainability of the AI investment cycle and the strengthening competitiveness of China's storage industry, market risk aversion has been thoroughly ignited."

With these multiple factors combined, storage 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 general deterioration in market sentiment towards the semiconductor sector. Some institutions have even predicted in their latest reports that storage prices will peak in 2027.

"The Big Short": Taking a Clear Stance Against Storage

At the most panic-stricken moment in the market, Michael Burry, the inspiration for *The Big Short*, publicly disclosed through his personal column that he is aggressively shorting the storage chip sector and continues to increase his position.

Reviewing Burry's position-building timeline: On July 2, he initially established a short position in Micron Technology, entering around $1,051.87 per share. On July 25, he increased his short positions against Micron (at $933.86) and Nvidia (at $210.28), while also establishing a short position in the SOXX semiconductor ETF.

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

First, valuations are severely deviated from the mean. As the only pure-play DRAM stock in the US market, Micron has experienced 34 corrections deeper than 30% in its 42-year history. Currently, its stock price's deviation from the 200-day moving average has hit its highest level since 1984, even surpassing the peak of the internet bubble in 2000.

Second, returns on capital are extremely mediocre. Micron's long-term median ROIC is only 4%, its ROE is only 7%, and historically, approximately one-third of its quarters have actually been in a "capital destruction" state.

Third, there is a risk of inflated end demand. Burry believes that the robust demand triggered by Nvidia does not entirely originate from real end-user consumption but is an illusion driven by off-balance-sheet financing and capital recycling arrangements, citing the Bank for International Settlements (BIS) 2026 Annual Report as evidence.

"Big Short" Burry shorting storage stocks

Regarding the recent expansion plans announced by the Korean giants, Burry asserted that this is a "landmark node signaling the semiconductor cycle's shift from prosperity to decline." He predicts the entire sector is facing a correction of at least 30%.

However, there are dissenting voices in the market. Bulls argue that the quarterly report Micron just delivered is the best in the company's history, with records set in revenue, profit margins, and cash flow.

Analysis from tech media CoinCentral points out the real logic behind Burry's bet: he isn't betting on an immediate collapse of end demand, but rather gambling on a loss of control over capital expenditure by storage manufacturers — Micron's own massive $27 billion capital expenditure is planting the seeds for a "crash" in the next downward cycle.

High-Stakes Gambling and the Consequences

Just weeks before the "stampede" occurred, the global storage industry was immersed in an unprecedented "super alliance."

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, locking in HBM supply and joint development of HBM4. Combined with collaborations with Microsoft and Anthropic, the total scale reaches approximately $750 billion.

Simultaneously, Samsung Electronics signed a memorandum of understanding with Broadcom valued at up to $200 billion. The combined total of these two deals, approximately $950 billion, has been dubbed the largest-ever long-term supply lockup agreement in the semiconductor industry by foreign media.

Around the same time, AMD's acquisition of MEXT aimed to use flash memory to "mimic" DRAM to reduce memory costs, while Meta locked in a multi-year NAND supply agreement with SanDisk.

This new round of alliance-building among Silicon Valley giants did not positively impact the stock prices of storage concept stocks. Compared to short-term stock price fluctuations, what truly unsettled long-term capital was a super industrial plan unveiled by the South Korean government at the end of June. Samsung and SK Group will jointly invest 800 trillion Korean Won (approximately $516 billion) to build four new wafer fabs in southwestern South Korea, aiming to double memory chip production capacity within five years.

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

The expansion by storage manufacturers means the "supply discipline" and strict financial discipline maintained by the industry for two years have been broken.

Over the past two years, it was precisely by strictly controlling production and tilting capacity towards high-margin HBM that storage manufacturers successfully pushed memory chip prices back to high levels. Now, SK hynix's 2026 capital expenditure is projected to jump significantly by 43% to 40 trillion Korean Won, and Micron's capital expenditure for fiscal year 2026 has also doubled year-on-year.

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

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

Although it typically takes 18 to 24 months from fab construction to capacity ramp-up — for instance, Samsung's P5 fab mass production is scheduled for the second half of 2027 — and TrendForce judges that the DRAM supply shortage is unlikely to fundamentally reverse before then, the stock market always trades on expectations, not the present.

It can be said that South Korea's super expansion plan shattered the market's illusion of "sustainable high chip prices." The "night of terror" for the storage sector is, in essence, a disconnect between fundamentals and expectations.

Now, sensitive capital markets have already begun pricing in the potential supply glut of 2027 in advance. According to "Big Short" Burry's expectations, the time window from the second half of 2027 to 2028, when new Korean fabs enter mass production, will be the true test for the storage industry.