As the pace of storage chip price increases shows signs of slowing, market concerns over a “cyclical peak” are growing by the day. Facing this traditional dilemma, the two storage giants, Samsung and SK Hynix, are attempting to deploy a new defensive card: returning more cash to shareholders.
Last Friday, SK Hynix announced that it would disclose details of its shareholder return plan in the third quarter and pay a dividend of 375 Korean won per share. Industry expectations are widespread that the larger peer Samsung Electronics will soon follow suit, and this anticipation has already propelled Samsung Electronics (005930.KS) shares up 4.1% on Tuesday. In its second-quarter earnings release at the end of July, Samsung had already indicated that its board and management are actively discussing specific measures for shareholder returns this year, including the payment of a special dividend.
Against the backdrop of AI demand continually squeezing supply, both companies are generating strong cash inflows. As price increases moderate, stock buybacks and dividend payouts are expected to become the next catalysts for share prices, providing a support line when the market broadly anticipates that earnings have peaked.
This shift comes precisely as investors once again confront the age-old pattern in memory chip stocks: prices tend to decline before earnings peak. According to estimates from TrendForce, the contract price increases for both traditional DRAM and server DRAM are expected to gradually moderate in the future. History shows that the market prices in earnings revisions well ahead of time, much earlier than the actual “peak” in financial data. Since their respective highs for the year in June, SK Hynix and Samsung Electronics shares have fallen approximately 50% and 34%, respectively, even as their earnings hit records during the same period. The contrast between “soaring earnings” and “restrained dividend payouts” has been interpreted by the market as management lacking confidence in the sustainability of AI storage profits, becoming a significant factor in the share price pullback.
The other side of the issue lies in the ample cash holdings of both companies. According to LSEG data, their combined net cash reserves are projected to reach $263 billion by year-end, surpassing the total of the remaining six of the U.S. tech “Magnificent Seven.” However, both companies currently plan to allocate 50% of their free cash flow to shareholder returns, a sharp contrast to the 100% commitment pledged by U.S. storage peer Micron Technology, drawing investor dissatisfaction. Wall Street pressure has subsequently intensified, with institutions such as JPMorgan and Janus Henderson publicly calling on SK Hynix to raise its shareholder return ratio to 80% or above. Against this backdrop, SK Hynix’s upcoming Q3 plan and Samsung’s potential follow-through have taken on significance far beyond routine announcements.
Unlike in previous cycles, storage manufacturers now hold a new card: long-term supply agreements (LTAs). According to disclosures, SK Hynix has signed LTAs with approximately ten customers; Samsung expects that multi-year contracts will cover 60% to 70% of its planned capacity. Such agreements can significantly enhance demand visibility, smooth out sharp earnings fluctuations, and give the market reason to value these companies based on “normalized cash flows,” rather than merely chasing short-term price movements.
From “price gaming” to “cash returns,” the investment logic for storage stocks is shifting. Supported by the long-term tailwind of AI demand, Samsung and SK Hynix are attempting to convey a signal of “sustainable earnings” through shareholder returns. Maxon Viseau, Chief Investment Officer of Dubai-based Arkevium Capital, noted that in the mature phase of the cycle, capital returns are poised to become the next major catalyst. Analyst Sean Kim of Morgan Stanley also issued a report stating that market focus is shifting from price cycles to capital returns, and he judges that this round of adjustment is nearing its end, with valuations offering an entry opportunity. He maintains a long-term bullish stance on both companies.
In short, whether buybacks and special dividends can truly serve as “stabilizers” against cyclical downturns will largely depend on whether the two companies can deliver plans more compelling than the “50%” mark. At least at this juncture, the two giants are attempting to respond to market anxieties over a “cyclical peak” with real money.
