The sustained expansion of AI inference demand is pushing the global storage market into a new structural upward cycle, with SK Hynix emerging as the most direct beneficiary.
Citi analysts Peter Lee and Jayden Oh pointed out that AI inference demand is driving a surge in KV cache storage needs, leading to a significant jump in average selling prices for DRAM and NAND in the first quarter. Simultaneously, storage suppliers are extending quarterly contracts into 3- to 5-year long-term agreements, which will significantly enhance earnings visibility, compress cyclical fluctuations, and lead to structural improvements in SK Hynix's earnings quality.
The report raised SK Hynix's target price from 1.55 million South Korean won to 1.70 million South Korean won, maintaining a &#34;Buy&#34; rating, and expects the company's operating profit for the first quarter of 2026 to reach 39.1 trillion South Korean won, a 104% increase quarter-on-quarter and a 426% increase year-on-year, significantly exceeding the market's consensus expectation of 35.1 trillion South Korean won. Based on the current stock price of 1.033 million South Korean won, the potential upside is approximately 64.6%.
<h2>First Quarter Performance Expected to Exceed Expectations, Pricing Power Jumps Significantly</h2>
In the first quarter of 2026, SK Hynix's DRAM average selling price is expected to rise by 63% quarter-on-quarter, and the NAND average selling price is expected to rise by 70% quarter-on-quarter, with the core driver being the explosive growth in demand for KV cache storage in AI inference scenarios.
In terms of shipments, DRAM shipments are expected to decrease by approximately 6% quarter-on-quarter and NAND by about 2% in the first quarter, but the substantial increase in average selling prices is sufficient to offset the seasonal decline, driving total revenue to an estimated 52 trillion South Korean won, a quarter-on-quarter increase of about 58%.
From a profitability perspective, the operating margin for the DRAM business in the first quarter is expected to be 80%, and for the NAND business, it is projected at 61%, with an overall operating margin of approximately 75%, a significant increase from 58% in the fourth quarter of 2025.
<h2>Server DDR5 and HBM Demand Maintains Upward Trend, Market Concerns Deemed Excessive</h2>
Regarding market concerns about macroeconomic uncertainty and potential suppression of storage demand due to AI algorithm optimization (such as efficiency improvements in models like DeepSeek), Citi holds the opposite view.
The underlying demand for 64GB server DDR5 DRAM and HBM is growing steadily and has not weakened due to recent market fluctuations. The evolution of AI algorithms such as TurboQuant will further boost demand for server DDR5 and HBM, rather than curtailing it.
On the pricing front, 64GB server DDR5 DRAM prices are expected to remain strong until the second half of 2026, and HBM demand will also continue to expand. As the widespread application of AI agents drives growth in token generation, CPU memory demand in both AI training and inference scenarios will receive a synchronized boost.
<h2>Long-Term Agreements Lock in Orders, Supply Shortage May Persist Beyond Expectations</h2>
The duration of the global storage supply shortage may exceed market expectations, and the promotion of multi-year, binding long-term agreements will further reinforce this trend.
Storage suppliers are upgrading existing quarterly contracts into 3- to 5-year long-term agreements, although specific details remain to be confirmed. This shift signifies that the storage market is evolving from a traditional commodity model toward a highly customized, customer-exclusive model—a trend comparable to the development path of the foundry business, with the HBM business already being priced in valuation models referencing TSMC's EV/EBITDA multiples.
Based on the above logic, Citi has given SK Hynix a target price of 1.70 million South Korean won.

Starting in April, major chip manufacturers such as Texas Instruments and Infineon collectively issued price increase notices, raising costs across the entire supply chain from raw materials to packaging and testing, directly driving up the semiconductor sector. How long do you think this wave of price increases will last?

Starting in April, major chip manufacturers such as Texas Instruments and Infineon collectively issued price increase notices, raising costs across the entire supply chain from raw materials to packaging and testing, directly driving up the semiconductor sector. How long do you think this wave of price increases will last?

Price hikes hit, semiconductor stocks surge.

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A Citi report states that the surge in AI inference demand is driving an explosion in KV cache storage. SK Hynix's first-quarter DRAM and NAND average selling prices (ASPs) are expected to rise by 63% and 70% quarter-on-quarter, respectively. Total revenue is projected to be approximately 52 trillion South Korean won, a 58% increase quarter-on-quarter. Quarterly operating profit is expected to reach 39.1 trillion South Korean won, doubling quarter-on-quarter and increasing 426% year-on-year, exceeding market expectations. Long-term agreements are driving the storage market toward a customized model, and the supply shortage may continue to exceed expectations

- The global storage market is entering a new structural upcycle driven by expanding AI inference demand, with SK Hynix as a key beneficiary.  
- Citigroup analysts report significant price increases for DRAM and NAND due to surging requirements for KV cache storage, and they have raised SK Hynix's target price to 1.7 million won.  
- Despite a slight decline in DRAM and NAND shipment volumes, strong price growth is expected to boost overall revenue, and the market shows resilience against macroeconomic uncertainties.

SK Hynix Q1 Performance Accelerating Again? Citi: Memory Supply Shortage to Persist Beyond Expectations, Quarterly Operating Profit May Double QoQ