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Storage Sector Deep Dive Update: Samsung's Profits Beat Expectations, Why is the Stock Price Still Correcting?

Key AI Points Summary:

1. The core logic behind Samsung's significantly better-than-expected earnings and its weakening stock price

The market's current pricing focus is no longer on a company's current profit level, but on whether the speed of profit upgrades can be sustained.

The memory sector has already fully priced in multiple positive factors such as chip price increases, HBM volume growth, and the implementation of long-term supply agreements.

At this stage, the market has three main concerns:

First, the inflection point in growth rate is emerging, and the rapid upward phase of DRAM and NAND price and profit upgrades is likely nearing its end;

Second, valuations remain discounted. The implementation of long-term supply agreements has not led to a synchronous increase in valuations; the market still values these stocks based on cyclical stock standards;

Third, there is uncertainty about long-term demand. As cloud service providers are the core source of end-demand, their subsequent capital expenditure guidance has become the biggest variable for the market trend.

In simple terms: current profit performance is very strong, but capital is worried that the strength of future growth will decline, so a lot of capital is choosing to take profits.

2. Is the growth rate inflection point mentioned in the report equivalent to the peak of the industry cycle?

The two cannot be directly equated; the growth rate inflection point and the cycle peak are two completely different concepts.

The growth rate inflection point represents a slowdown in the upward speed of chip price increases and profit upgrades, with the market transitioning from a high-growth phase to a stable-growth phase.

The cycle peak, however, means that chip prices, corporate profits, and market demand simultaneously shift from rising to falling, entering a downward channel.

This also explains why, despite strong fundamentals, the stock price corrects in advance. Capital will front-run the expectation of slowing growth. This kind of high-level volatility and turnover has occurred many times in the historical price movements of cyclical categories.

3. The underlying reason why the continuous implementation of long-term supply agreements cannot drive up the valuation of memory companies

The root cause lies in the market's inherent concerns about past industry cycle trends.

In historical cycles, long-term supply agreements have seen situations like customers renegotiating prices and passive accumulation of excessive inventory, which ultimately suppressed corporate profits due to high inventory.

The market's core current doubt is whether long-term supply agreements can be stably converted into operating cash flow, rather than just remaining as paper profits while simultaneously increasing corporate inventory levels.

Simply put, the market consistently applies a cyclical discount to corporate profits for valuation purposes. To repair valuations, corporate financial reports need to simultaneously demonstrate three things: stable high gross margins, healthy inventory levels, and ample free cash flow.

4. During this correction phase, memory companies have shown clear differentiation; the logic behind the tiered ranking of industry stocks

There are significant differences in the risk logic of each company. The core basis for tiered ranking is two-fold: the depth of a company's connection to real AI demand, and the strength of its own capacity supply barriers.

First tier, core stocks for industry fundamentals:

Samsung Electronics has a complete, vertically integrated industry chain layout. SK Hynix possesses industry-leading HBM capacity purity. These two are the bellwethers for the overall sector trend.

Second tier, stocks combining high volatility and profit quality: Micron's stock price shows stronger volatility elasticity, with its performance moving in sync with DRAM prices. Kioxia and SanDisk rely on enterprise SSD business to hedge pressure from ordinary flash memory operations. Western Digital and Seagate depend on HDD business for stable cash flow, highlighting their defensive attributes. This type of company needs to continuously verify its own profit quality and cash flow levels.