Guotai Haitong Overseas Custody Viewpoint: Transaction structure continues to improve, while the market underestimates the sustainability of high profitability

Glonghui, July 21 — According to a report on overseas storage views from Guotai Haitong, the slowdown in price increases has already been fully priced in, but the market has by no means priced in the sustainability of this cycle’s prosperity. The recent correction presents an opportunity to enter the market, not a signal that the cycle has peaked. The slowdown in DRAM price increases (around 90% in Q1 → approximately 60% in Q2 → Q3 guidance within 20%) has been fully digested by the market; the recent decline is a response to known information, not new negative news. The real divergence lies in the sustainability of high profitability, not in short-term price elasticity. Long-term contracts exchange current price elasticity for future cash flow predictability, reducing profit volatility and risk premium—this is positive for valuations. The market tends to price via the “price elasticity → profit elasticity → valuation elasticity” chain, mistakenly viewing long-term contracts as a limitation on price increase potential. In reality, long-term contract coverage is only 30%-50%, and the price cap for new Q3 contracts is even higher, so elasticity is not locked in. This cycle is driven by AI data center demand, and some specs are expected to see price increases of over 25% in Q3. Manufacturers’ capacity expansion is a long-term plan spanning more than ten years. The complexity of HBM4 technology will absorb the majority of new capacity; SK Hynix expects 2027 to be the tightest supply year. The current sector corresponds to only 4-5x forward P/E for 2027 (previous peaks were 7-8x), implying a profit yield exceeding 20%, indicating long-term allocation value. Leveraged funds’ forced liquidations are nearing the end, with a significant decrease in marginal selling pressure. Storage has become the main bottleneck restricting computing power expansion; pricing now relies on profit duration rather than annual elasticity. It is recommended to accumulate positions gradually during corrections.