Storage price increase effect accelerating release, later price may oscillate at a high level.

East Sea Securities released a research report stating that the demand in the electronic industry remains strong under the drive of AI, and the supply side capacity layout is slow. The high prosperity may continue. Currently, the high storage prices are significant in suppressing demand for consumer electronics such as smartphones, and the current valuation is at historical high levels. Taking everything into account, the bank believes that the high prosperity of AI infrastructure may continue, and the localization of semiconductors is still accelerating. It is recommended to focus on structural opportunities of AI and localization on dips. Key viewpoints of East Sea Securities are as follows: Summary of June 2026 and Outlook of July: In June, semiconductor demand continued to be strong under the drive of AI, with prices continuing to rise. However, the expansion of valuation is too fast, and caution is needed for the risk of correction after the mid-year report realization. It is recommended to focus on the industrial chain links such as AI computing power, storage, optical modules and chips, AIoT, etc., and also pay attention to opportunities in domestic alternatives such as semiconductor equipment, components, materials, advanced packaging, analog chips, etc. The global semiconductor demand continues to improve, with rapid growth in AI capital expenditure. The total capital expenditure of the top 9 CSPs in the world for 2026 has been raised to 830 billion US dollars, with an annual growth rate increasing to 79%; rapid growth in TWS headphones, wrist devices, and AI servers. The demand in July may continue to recover; on the supply side, demand in the AI-related segmented market is strong, with tight capacity in upstream wafer foundries even squeezing other industries. As a result, wafer prices have risen, and it is expected that the supply-demand situation in the semiconductor market in July will continue to be tight. In terms of prices, some storage prices continued to rise in June, and the price increases have spread from storage, CPUs, and consumer electronics to power, analog, MCU, and other semiconductor industries; AI remains the future theme, and the domestication rate of the related industrial chain continues to rise. Currently, the geopolitical environment globally is tense, which, on the one hand, has pushed up upstream manufacturing costs, and on the other hand, some technology-intensive areas may face high pressure from US policies. In the short term, the high costs of industries dependent on imports are rising. In the long term, semiconductor localization is expected to accelerate, and it is recommended to focus on leading stocks in segmented sectors on dips. In June, the electronic sector rose by 27.73%, while the semiconductor sector rose by 36.75%. At the end of June, the semiconductor valuation was at a historical high level for the past 5 years, with a PE ratio of 100.00% and a PB ratio of 100.00%. The electronic industry in the Shanghai and Shenzhen Stock Exchange rose by 27.73%, with the semiconductor sector rising by 36.75%, while the Shanghai and Shenzhen 300 index rose by 1.78% during the same period. In terms of historical 5-year and 10-year data, the PE of semiconductors was 100.00% and 99.79%, while the PB was 100.00% and 100.00%, respectively. In the first quarter of 2026, the market value of the electronic industry in public funds was still at the top, reaching as high as 625.31 billion yuan, with the scale of semiconductor allocation accounting for 71.14% of the electronic industry and 14.01% of the total stock market value held. The major holdings were mainly leading companies in the semiconductor sub-industry with a market value of over 40 billion yuan. The top 20 holdings accounted for 83.64% of the total market value of semiconductor holdings. The overall semiconductor prices fluctuated in June, with some segmented areas experiencing downward trends, and the market in July may continue to be volatile. In June, some storage module prices showed slight downward fluctuations, but most DRAM and Flash prices continued to rise strongly. Price increases in other semiconductor industries are gradually being implemented. In June 2026, the overall price fluctuation range of storage module was -7.14%-9.09%; the price fluctuation range of storage chips DRAM and Flash was -12.43%-31.04%. Global leading enterprises maintained high inventory levels in the first quarter of 2026, with 143 A-share listed companies seeing an increase in inventory in the first quarter of 2026, with a revenue growth of 32.24% compared to the same quarter, and a net profit growth of 180.98%, driven by the recovery in demand. From the supply side, semiconductor equipment shipments in Japan increased by 17.94% year-on-year in May 2026, and 9.87% year-on-year from January to May, indicating a more optimistic outlook for capacity expansion in 1-2 years. In terms of semiconductor downstream demand, the demand for AI servers, TWS headphones, and wearable wrist devices showed good recovery, while the shipment volume of consumer electronics in 2026 may decline due to storage prices. Consumer electronics, automotive, servers, and smart wearables together account for over 80% of global semiconductor downstream demand, affecting the demand variations of upstream semiconductors. In the first quarter of 2026, the global smartphone shipment volume decreased by -4.99% year-on-year, while the smartphone shipment volume in mainland China increased by 16.54% year-on-year in May 2026 and by 3.59% year-to-date from January to May. The global new energy vehicle sales in May 2026 increased by 6.90% year-on-year, and by 2.03% year-to-date from January to May, with Shanxi Guoxin Energy Corporation's car sales increasing by 14.46% in May and by 3.50% year-to-date from January to May. TWS headphones shipment in China grew by 6.7% year-on-year in 2025, while wearable wristband device shipment increased by 20.8%. In the first quarter of 2026, global semiconductor revenue increased by 27% quarter-on-quarter to 319 billion US dollars, with memory contributing the main increment, showing a greater than 80% quarter-on-quarter increase due to the increase in storage prices driven by AI demand. According to Omdia, global semiconductor revenue in the first quarter of 2026 increased by 27% quarter-on-quarter to 319 billion US dollars, with memory contributing the main increment with a quarter-on-quarter increase of over 80%, driven by the continuous demand for AI and data centers and the sustained supply constraints. Micron Technology, as a core beneficiary, reported in the financial report for the third quarter of the 2026 fiscal year on June 25, achieving an operating income of 41.456 billion US dollars, a year-on-year increase of 345.72%, far exceeding the market's earlier expectation of 33.5 billion US dollars. GAAP net profit attributable to the parent company reached 28.243 billion US dollars, a year-on-year increase of 1398.30%, reaching historic highs in revenue and profits. The gross profit margin increased significantly to 84.6%, a year-on-year increase of 46.9 percentage points, reaching a historic high, with a significant increase in profit levels driven by high-margin AI products. The company expects revenue for the fourth quarter to be 50.010.0 billion US dollars, GAAP diluted earnings per share to be 30.731 US dollars, non-GAAP diluted earnings per share to be 311 US dollars, and the gross margin is expected to remain around 86%, continuing the strong growth trend. Risk Warning: (1) Downstream demand recovery falls short of expectations; (2) Domestic substitution process falls short of expectations; (3) AI capital expenditure falls short of expectations.