Memory Suppliers’ Earnings: Maintaining Favorable Price Outlook for 2024; AI Server Is a Bright Spot

We have revised our earnings forecasts for two South Korean memory suppliers and raise the fair value estimate for Samsung Electronics to KRW 80,000 per share from KRW 78,000 and to $1,560 per global depositary receipt from $1,470. We’ve raised the fair value estimate for SK Hynix 000660 to KRW 140,000 from KRW 120,000. The reason for the larger increase in SK Hynix’s fair value is that the contribution of increasing investment in artificial intelligence servers is more significant. Excluding the AI server investment, memory supply and demand are largely in line with our expectations, and we maintain our view that memory prices will bottom out by the end of this year and continue to rise through 2024.

While we view Samsung’s shares are undervalued, we believe SK Hynix’s shares are fairly valued as they have risen about 70% year to date. However, we believe they are highly likely to overshoot in the near term due to expected memory price increases in the next few quarters and continued news flow on AI server investments.

The highlight of the June quarter results was the unexpected increase in SK Hynix’s DRAM prices. While the average selling price for competitor Micron’s DRAM declined by approximately 10% in the May quarter and Samsung Electronics recorded a mid- to high-single-digit price decline in the June quarter, SK Hynix’s ASP increased by high single digits from the previous quarter. According to SK Hynix, revenue for graphic DRAM was 10% of total DRAM revenue in the December quarter but jumped to 20% in the June quarter due to the massive investment in AI servers, driving the ASP increase. SK Hynix is known for its top share of high bandwidth memory used in AI servers, which is several times more expensive than other DRAM because of its high bandwidth and low power consumption. SK Hynix is considered to be several quarters ahead of its competitors in terms of product development and customer relations.