Driven by surging AI demand, memory chip manufacturers are experiencing record-breaking profit growth. Samsung Electronics (SSNLF) and SK Hynix are expected to see their net profits skyrocket by 400% and nearly 300% respectively this year, far exceeding TSMC’s growth of around 50%. However, their forward price-to-earnings (P/E) ratios stand at less than 6x—just a fraction of the valuations of AI chip leaders like TSMC (TSM) and Nvidia (NVDA). This stark contrast has sparked intense market debate: Has the memory chip industry entered a “super cycle” that breaks free from its traditional boom-and-bust pattern?
Some argue that the lower valuations are justified because memory chip earnings are inherently unstable and have historically followed the cyclical fluctuations of the broader economy. On the other hand, bulls contend that this time is different, as AI is driving unprecedented demand. Jorry Noeddekaer, head of global emerging markets and Asia at Polar Capital in London, said, “In a sense, we are in a new paradigm for memory chips.” But he added, “We don’t agree with the view that memory chips will never see cycles again.”
Despite memory chip stocks significantly outperforming the broader market in recent months, their valuations remain this low. Since late August last year, as chip prices surged, Samsung’s stock has tripled, SK Hynix has quadrupled, while TSMC has risen only 77%. A similar trend is seen globally—from Micron Technology in the U.S. to Kioxia Holdings in Japan, other memory and flash storage companies with soaring stock prices still have forward P/E ratios below 10x. Meanwhile, Nvidia’s is 22x.
The robust demand driven by AI has spread from high-bandwidth memory to broader DRAM, flash memory, and other products, leading to supply shortages and price surges. As chipmakers race to expand production, some market participants have raised concerns about the timing and scale of capacity expansion. Christine Phillpotts, portfolio manager for emerging market equities at Ariel Investments in New York, said, “I think the ultimate point of debate is how quickly supply will increase to meet demand.” In past cycles, supply often expanded ahead of demand when demand weakened, so “this is definitely a risk we are monitoring closely.”
However, some investors believe that once the market sees evidence that earnings growth is more structural rather than cyclical, memory chip valuations could catch up. Dave Mazza, CEO of Roundhill Investments, said, “Memory chips are now being co-designed and directly tied to AI accelerator roadmaps. More and more memory companies are signing long-term contracts with cloud giants, which fundamentally changes the cyclical nature of the business.”
The low valuations are a major attraction for investors like Molly Pieroni, president of Yacktman Asset Management in Texas. The firm holds Samsung preferred shares and does not own Nvidia due to its high valuation multiples. Pieroni said that for Samsung, “you don’t even need extraordinary performance to justify the current valuation”—even if the stock price doubles, the valuation multiple would still be very attractive. SK Hynix is set to report earnings on Thursday, while Samsung will report next week. However, several more quarters of data may be needed to help memory chips shed their deeply ingrained commodity image.
