Experience the shock brought by the "storage supercycle"! Not only are the cloud giants fighting over HBM, they are also rushing to help SK Hynix purchase lithography machines to expand production.

Media reports quoting informed sources revealed that SK Hynix, the dominant player in the HBM storage field, is being actively targeted by global tech giants in an unconventional manner. Companies such as Microsoft Corporation, Alphabet Inc. Class C, and Amazon.com, Inc., the world's largest cloud computing giants, are unprecedentedly investing in SK Hynix's new production lines and planning to personally fund the purchase of expensive chip manufacturing equipment such as ASML Holding NV ADR lithography machines and cutting-edge HAR etching and thin film deposition equipment to expand capacity. This coordinated approach aims to secure as much capacity and supply as possible in the midst of fierce competition to ensure a steady supply of HBM, DRAM/NAND storage chips. This type of pricing and capacity investment in the global storage chip industry is unprecedented, highlighting the extremely severe shortage of such components worldwide. With the unprecedented AI boom driving a surge in computational infrastructure demand, storage chip manufacturers are struggling to keep up with the exponential growth in demand. Storage chips are essential components in the construction of massively large AI data centers being built globally, as well as in the fields of smartphones, personal computers, wearable electronics, and other electronic products. Whether it's Alphabet Inc. Class C's massive TPU AI computing cluster or NVIDIA Corporation's massive AI GPU computing cluster, both rely on HBM storage systems integrated with AI chips. In addition to purchasing server-level DDR5 storage and enterprise-level high-performance SSD/HDD, tech giants are accelerating the construction or expansion of AI data centers, resulting in the need for large-scale procurement of storage chips. Samsung Electronics, SK Hynix, and Micron Technology, Inc. are currently key players in the three core storage areas: HBM, server high-performance DRAM (including DDR5/LPDDR5X), and high-end data center-level SSD. They are the most direct beneficiaries in the "AI memory + storage stack" and are reaping the benefits of the AI infrastructure boom. Regarding the rising prices of DRAM/NAND storage chips, the Wall Street financial giant Goldman Sachs Group, Inc. predicts that the price increase in storage by 2026 will far exceed its previous optimistic expectations. Goldman Sachs Group, Inc. recently raised its forecast for the price increase in DRAM storage chips from about 150% to 250% - 280%, and for NAND storage chips from about 100% to 200% - 250%. In other words, Goldman Sachs Group, Inc. believes that this is not an ordinary inventory correction cycle, but a "super supply shortage cycle" caused by unprecedented demand surge driven by AI computing power, the increasing squeeze on capacity due to the highly complex manufacturing and packaging processes of HBM, and the insufficient elasticity of general DRAM/NAND supply. GPUs are responsible for generating intelligence, HBM/DRAM for high-speed computing, enterprise-grade NAND/eSSD for hot data and caching, and HDD for long-term storage of massive volumes of cold/warm data. Therefore, Goldman Sachs Group, Inc. believes that the AI computing arms race led by cloud computing giants is transforming storage chips from cyclical products into strategic scarce assets. The price increase in DRAM/NAND by 2026 is not the end, but may just be the initial stage of a super cycle. SK Hynix emerges as a key player in the AI computing arms race According to the latest reports, six informants stated that the largest customers of the company (SK Hynix) have been proposing unprecedented pricing models to the South Korean chip manufacturing giant, including investments in dedicated storage chip production lines - where an entire storage production line belongs to a specific major customer. Three informants stated that another proposal involves customers providing substantial financial support for the purchase of semiconductor manufacturing equipment, such as ASML Holding NV ADR's extreme ultraviolet EUV lithography machine or the more expensive high-NA lithography machine. These equipment are used for printing circuits on silicon wafers, etching, depositing thin films, CMP, and a series of the world's most cutting-edge chip manufacturing processes, with a value reaching billions of dollars. However, two informants stated that the South Korean chip manufacturer has a very abundant cash flow, and is cautious about accepting financial and investment commitments from customers, as such transactions may make it subject to a specific buyer and may require it to supply storage chips at a lower price compared to market prices in exchange for longer-term and more stable revenue guarantees. One informant stated, "Regardless of the type of offer, available storage capacity is virtually zero at the moment." "There isn't even any additional capacity available that can be allocated to a specific customer." Another informant stated that one proposal is focused on the first phase of a large wafer factory under construction by SK Hynix in the Icheon Semiconductor Industrial Complex in South Korea, which is likely to prioritize dynamic random access memory (DRAM) chips. The details of these pricing models are being reported for the first time. SK Hynix and its main competitors, Samsung Electronics and Micron Technology, Inc., have stated that they are negotiating multi-year supply contracts with large customers, but have not provided specific details of the agreements. The sources cited by the media refused to disclose their identities, as the discussions were considered confidential. A spokesperson for SK Hynix declined to provide any details of the contract terms with its customers but stated, "We are reviewing various pricing methods and structural alternatives different from traditional long-term agreements." The company is the third-largest in Asia by market value, behind only Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR and Samsung. Thanks to increasing bets from investors on the storage supercycle driven by the AI infrastructure boom, its stock price has risen sharply by 154% this year, reaching record highs. As of the end of regular trading on the South Korean stock market on Friday, Samsung Electronics' market value remained above $1 trillion. Samsung Electronics reached a milestone on Wednesday, with its market value exceeding $1 trillion, a growth of approximately 80% since the beginning of the year, making it the second Asian company to reach a market value of $1 trillion after Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR. AI training projects rely more on large-scale parallel computing, while inference, especially in long-context, multi-turn conversations, and agentic AI workflows, require continuous storage of KV Cache, context states, and intermediate results. When memory/storage space is insufficient, models have to recompute historical states, leading to decreased GPU utilization and increased token generation costs. Therefore, HBM, DDR5, LPDDR, enterprise-grade SSD, and even HDD/data lakes are forming an "AI memory chain" from the GPU's near end to the far end storage, determining the throughput, latency, concurrency capabilities, and unit token economy of the AI systems. This is why memory and data storage stocks such as Micron, Samsung, SK Hynix, SanDisk, Western Digital Corporation, etc., are experiencing interconnected frenetic growth: the demand is not just limited to HBM but spreads across the entire chain from DRAM to NAND, SSD, and HDD. In the backdrop of the so-called "storage chip supercycle" driven by the unprecedented AI infrastructure boom, the two major super storage chip giants in South Korea - Samsung Electronics and SK Hynix, with a combined weight of nearly 50% in the Kospi Composite Index, are the strongest engines attracting global funds and driving the Korean stock market to set new highs and outperforming global stock markets. The Kospi Composite Index has risen by over 76% since the beginning of the year until now, surpassing last year's leading performance in global stock markets. However, unlike the whole of 2022, 2023 has seen a different scenario as the rise of over 76% since the start of the year in less than five months. It is currently unclear which global tech giants are proposing investment pricing models to SK Hynix, but sources suggest that these large customers include, but are not limited to, major U.S. cloud computing and tech leaders such as Alphabet's Alphabet Inc. Class C (GOOGL.US), Meta of Facebook, and Microsoft Corporation (MSFT.US) - these tech giants announced significant plans to increase their AI computing infrastructure spending last week. Meta stated in its earnings call, "We are actively investing to meet our compute infrastructure needs," adding that this includes "making a series of transactions throughout the supply chain to ensure the necessary AI components for future capacity." Microsoft Corporation's management also stated in its earnings call that overall capital expenditure is expected to increase significantly to $190 billion this year, including an additional $25 billion in expenses due to rising costs of components such as chips. The unprecedented price proposals made to SK Hynix are considered highly unusual in the storage chip industry. The industry is known for its extreme cycles of prosperity and recession, but these proposals are prompting storage chip manufacturers to believe that this round of intensity has surpassed the record storage prosperity cycle of 2018, and the prolonged upturn in storage demand may continue. SK Hynix and Samsung Electronics' management stated last month that the current shortage of storage chips is expected to persist in the long term, as chip manufacturers need more time to build additional supply and capacity to keep up with the "exponential growth" in AI compute demand. SK Hynix stated at the time, "There are significant limitations in meeting all customer requirements due to current supply constraints," adding that demand for long-term supply and demand contracts to ensure supply is increasing rapidly. Storage chip manufacturers have been stating in recent years that multi-year contracts will help smooth out sudden demand fluctuations and reduce the enormous investment risks of this cyclical industry, which often requires billions of dollars in investment to significantly expand capacity. The unprecedented AI infrastructure boom and the storage supercycle have propelled the semiconductor industry into a new stage that is "more material-intensive, process-control-intensive, and forward-looking in packaging processes": the logic side with three-dimensional structures and new material overlays, the storage side with HBM stacking and interconnect upgrades, and the packaging side with CoWoS/hybrid bonding that transforms system performance into manufacturing challenges - these three forces together drive up the value density of crucial steps such as deposition/etching/CMP/advanced packaging/core measurement, and transform the semiconductor equipment-related demand from "cyclical fluctuations" to a more obvious "structural large expansion cycle." The most crucial semiconductor equipment base for expanding chip production, includes not only ASML Holding NV ADR lithography machines, but also expensive high-end equipment such as High Aspect Ratio (HAR) etching/deposition for HBM/DRAM/NAND, CMP (chemical mechanical polishing), metrology/detection, and hybrid bonding required for advanced packaging. Applied Materials (AMAT.US), the ubiquitous semiconductor equipment giant in the chip industry, pointed out in its latest technological interpretation that the HBM manufacturing process adds about 19 additional material engineering steps compared to traditional DRAM, and claimed that its most advanced semiconductor equipment covers about 75% of these steps. The company also launched a heavy-duty bonding system tailored for advanced packaging/storage chip stacks, making HBM and advanced packaging manufacturing equipment its strong growth vectors in the medium to long term. However, industry executives, investors, and analysts generally agree that there are still a series of unresolved issues on how to ensure that customers do not cancel transactions and how to price storage chips favorably. Samsung stated that unlike past long-term agreements, the recent agreements it signed with some customers are "binding" but did not provide more details. An informant who has attended internal briefings of chip manufacturers stated that one of the structures discussed between chip manufacturers and their largest customers as part of long-term agreements involves a price range mechanism; this mechanism sets lower and upper limits for pricing in annual contracts, effectively eliminating quarterly or seasonal price negotiations. Another structure discussed internally by chip manufacturers involves pre-payment, requiring customers to prepay 30% to 40% in cash. However, another source stated that chip suppliers are acting very cautiously in how they allocate scarce capacity to avoid antitrust regulatory scrutiny or being seen as favoring specific customers. "They don't want to 'bet on a single horse' in the AI race and end up betting on the wrong one," the informant said.