Goldman Sachs Details "8 Major Focuses" of Korean Storage: Valuation, Long-term Contracts, Inventory, ChangXin Impact, Buybacks, etc.

The share prices of Samsung Electronics and SK Hynix have experienced significant corrections in recent months, with valuations dropping to extremely pessimistic levels. However, Goldman Sachs believes that the fundamentals do not warrant such depressed pricing and has reiterated its Buy rating on both companies.

According to Chasing Alpha (English translation for 追风交易台), on August 4, the Goldman Sachs Giuni Lee team published a research report systematically addressing the market’s current eight key concerns surrounding the Korean memory industry, covering HBM price outlook, long-term agreement structures, inventory situation, CXMT (Changxin Memory Technologies) impact, shareholder returns, and the influence of SK Hynix US-listed ADRs, among other topics.

Analysts believe most of these concerns are over-interpreted by the market, and the true supply-demand situation still supports high memory prices.

In this context, Samsung Electronics' and SK Hynix’s shares fell by 23% and 35% respectively over the past month, causing the 2027 expected P/E ratios for both companies to drop to around 3.5 to 3.6x, while P/B ratios fell to only 1.4 to 1.6x.

Goldman Sachs points out, this level of valuation implies the market's extreme distrust in the earnings sustainability of both companies, which is a clear deviation from their actual fundamentals.

Goldman Sachs expects the average HBM prices for Samsung Electronics and SK Hynix will increase YoY by about 87% and 100% respectively in 2027, both approaching $2.9 per Gb. Among these, similar product price increases are about 60%, with the remaining gains coming from improved product mix.

The main logic behind this view is the continued tight supply-demand dynamic.

The report notes that AI server-driven HBM demand continues to outpace supply, while yields on the latest generation HBM are notably lower due to more advanced process nodes and higher stack counts. Coupled with a higher conversion ratio from HBM to standard DRAM, this further increases the difficulty of supply expansion.

Goldman Sachs expects the HBM supply-demand gap in 2027 to be even tighter than this year.

Another key factor is the significant price difference between HBM and standard DRAM.

By Q2 2026, with standard DRAM contracts negotiated monthly or quarterly and thus better reflecting market dynamics, prices had already surpassed HBM, which is primarily priced under annual fixed contracts, resulting in an inversion.

Goldman Sachs projects that standard DRAM ASP will rise from about $0.5-$0.6 per Gb at the end of 2025 to roughly $2 per Gb by the end of this year, at which point HBM will inevitably regain its price premium and its operating margin will approach that of standard DRAM.

Goldman Sachs's forecast for SK Hynix HBM average price is about $2.9 per Gb, roughly 24% higher than the Bloomberg market consensus.

On this basis, the revenue proportion of HBM in Samsung and SK Hynix’s total DRAM revenue will increase from about 8% and 14% this year to 16% and 22% in 2027, and further to 18% and 25% in 2028.

As market expectations for tight memory supply over the long term continue to strengthen, both supply and demand sides are actively advancing the signing of Long-Term Agreements (LTA).

Goldman Sachs believes that, based on disclosed content and channel research, LTA terms are shifting to favor suppliers in four dimensions: longer duration, broader coverage, more favorable pricing structures, and stronger binding force.

In terms of tenure, most suppliers say contracts are primarily five years, while some customers have three-year agreements. Samsung revealed on its earnings call that its LTAs are usually based on a five-year term, with rolling renewals adding a year each cycle, theoretically extending beyond five years.

In terms of coverage, targets are rising from 50% to 60%-70%. Specifically:

• Western Digital (SanDisk) has signed agreements with five customers, covering about 1/3 of 2027 shipments, aiming for 50% long-term;
• Micron has signed 16 strategic customer agreements, covering about 20% of DRAM shipments and 1/3 of NAND shipments, aiming for LTA revenues to exceed 50%;
• SK Hynix says it has completed negotiations on about 10 long-term agreements;
• Samsung disclosed contracts with the world’s top five data center customers and is finalizing with five more, expecting post-signing multi-year contract volume to reach about 60%-70% of planned capacity.

In terms of pricing structure, the industry is evolving towards 'price bands' and 'floor price protection'.

Micron made clear its largest contract has both upper and lower price limits, benchmarked against Q2 2026 market price, and even sales at floor price retain gross margins above historical peaks.

Samsung said it will apply different pricing models based on customer group and product category, and has set a floor price for standard products to mitigate market price risk.

In terms of binding force, a prepayment mechanism is the most notable difference in this cycle’s long-term agreement terms:

• Western Digital disclosed financial guarantees (incl. prepayments) exceeding $11 billion;
• Micron expects to receive $22 billion in cash deposits and related financial commitments;
• Samsung stated that large prepayments are included as contract deposits, already having received about a quarter of total contract prepayments, with future prepayments set to increase as more deals are finalized.

Recently, concerns have increased about high inventories among memory module vendors.

Goldman Sachs acknowledges an uptick in module vendor inventories, especially as consumer demand for smartphones and PCs remains soft. But the key is that the module vendor segment accounts for only a single-digit percentage of the overall memory market, so the substantive impact on industry fundamentals is limited, more emotional than structural.

From the more critical perspective of suppliers and end customers, inventory levels remain healthy.

As of Q2 2026, Goldman Sachs estimates DRAM and NAND inventories at both Samsung and SK Hynix are at 2-4 weeks, below the normal range of roughly 4-5 weeks, and well below the 10+ weeks seen before past downcycles.

Given that supply growth over the next 12-18 months is expected to remain below demand growth, this low inventory environment should persist.

On the end-customer side (especially servers), even with aggressive procurement in recent quarters, inventory will remain normal because most purchased product goes directly into immediate production.

Recently, market concerns about NAND oversupply have intensified, with some bears pointing to spot price declines as evidence. Goldman Sachs has a different view.

From a supply-demand perspective, Goldman Sachs expects the NAND supply-demand gap to further widen in 2027 versus this year. The main reason is that large suppliers are prioritizing capex in DRAM, while on the NAND side, expansion is focused on process upgrades rather than wafer capacity, so supply growth is expected to lag demand over the medium term.

On the demand side, Goldman Sachs estimates enterprise SSD demand will rise from 474EB in 2026 to 755EB in 2028, with YoY growth of 66%, 31%, and 22% respectively.

Although consumer demand is soft, Goldman’s channel checks show enterprise SSD demand remains on an upward trajectory and is sufficient to offset consumer softness.

As for recent spot price declines, Goldman notes weakness is mainly concentrated in the TLC 512Gb spec, while TLC 1Tb and other variants remain stable.

Notably, TLC 512Gb prices had jumped nearly 600% over the past year—far exceeding the 400%-plus increases of most other products—so the current pullback is essentially a normal correction after outsized outperformance.

Korean memory makers failed to provide clear details on return plans during recent results calls, disappointing some investors.

Goldman Sachs notes that after Kioxia announced a shareholder return plan on August 3, its shares rose 6% in a single session, while Samsung and SK Hynix both fell 9% that day—Goldman believes a material part of this divergence was due to shareholder return expectations.

Nevertheless, both Samsung and SK Hynix clearly stated during earnings that they are actively considering various shareholder return plans.

Samsung’s current three-year return policy lapses this year, with a commitment to return 50% of three-year free cash flow to shareholders.

Goldman believes the current Bloomberg consensus for KRW 8,638 per-share dividend has room for upside, and has updated its own forecast to KRW 9,500. SK Hynix’s three-year policy covers 2025-2027, and Goldman likewise expects future dividends to exceed market consensus.

In addition to increasing dividends, Goldman notes that a buyback announcement would be strongly welcomed by the market, given the recent stock price plunge. For SK Hynix, thanks to ADR listing and associated share dilution, buybacks and cancellations could be an effective way to offset dilution effects.

SK Hynix completed its U.S. ADR listing on July 10. Since then, the ADR has traded at a consistent premium over the Korea share, with an average premium of around 26%, currently sitting at about 30%.

At the same time, SK Hynix’s Korean shares trade at a 41% forward PE discount to Micron, and a 30% discount to its own ADR.

Goldman attributes the current discount/premium gap to two reasons:

• First, procedural restrictions on conversion between ADR and local shares, causing a segmentation of investor groups;
• Second, extremely limited ADR issuance, at just about 2.4% of total shares outstanding.

SK Hynix has said ADRs can freely convert into Korean shares, but conversion in the opposite direction is subject to a quota and requires several weeks or longer for regulatory approval.

SK Hynix Chairman Chey Tae-won has indicated openness to additional ADR issuance. Still, by comparison with TSMC, whose ADR has maintained a long-standing premium, Goldman believes that without a true two-way conversion mechanism, SK Hynix’s ADR premium over domestic shares will persist.

In the longer run, ADR listing provides a direct channel for global institutional investors, helping SK Hynix gradually narrow its historical valuation discount versus international peers.

In Q2 2026, SK Hynix posted revenue of KRW 79.3 trillion, operating profit of KRW 60.5 trillion. Operating profit was in line with Goldman’s KRW 59.1 trillion forecast but about 7% below the Bloomberg consensus estimate of KRW 65 trillion.

Goldman believes the main reason for the earnings miss versus consensus was that DRAM average selling prices underperformed, up about 29% QoQ, lower than Goldman’s prior estimate of 39%. Standard DRAM prices began reflecting previously locked-in contract rates, while HBM ASP was weak as the mix shift to HBM4 was slower than expected.

Looking ahead to Q3, Goldman expects DRAM shipment growth of about 10% QoQ, with ASP rising by 19% QoQ, mainly benefiting from HBM4 ramp-up and 1c nm DRAM expansion, driving operating profit to an estimated KRW 77 trillion—roughly matching market consensus.

Goldman also points out that, compared to peers who have locked in contracts with price caps, SK Hynix has higher exposure to standard DRAM price upside, meaning if prices outperform, the company has greater upside potential.

Following CXMT’s IPO, concerns have grown about Chinese memory makers disrupting the global supply-demand balance.

Goldman Sachs believes CXMT’s expansion is primarily to satisfy domestic demand and its impact on global supply tightness is limited.

From a technology gap perspective, citing TrendForce data, Goldman notes that CXMT’s mainstream process is at the 1z node, while Samsung and SK Hynix are transitioning from 1a/1b to 1c nodes.

From a product mix perspective, about 70% of CXMT’s mobile DRAM shipments are LPDDR4(X), whereas LPDDR5(X) products account for 75%-85% of mobile DRAM output at Samsung and SK Hynix, indicating a clear difference in product positioning.