Guide Read THECAPITAL

This article has 5,675 words, approximately 8.1 minutes. Source | Zhou Daohong, Chairman and President of Shanghai Shengshi Capital Management Co., Ltd.

Recently, Changxin Technology was listed on the Science and Technology Innovation Board, unveiling the epic performance reversal of domestic storage giants: after accumulating losses exceeding 30 billion yuan over the past three years, it achieved a net profit of 33.012 billion yuan in the first quarter of 2026. The performance forecast indicates that the operating revenue for the first half of 2026 is expected to reach 110-120 billion yuan, with a net profit of 66-75 billion yuan and a net profit attributable to the parent company of 50-57 billion yuan. In fact, this explosive performance reversal is not an isolated event but a reflection of the global storage industry's resonance. In South Korea, the record performance of storage giants like Samsung and SK Hynix has become the core engine driving the South Korean stock market out of a bull market: in the first quarter of 2026, Samsung Electronics' quarterly operating profit surged 756% to 57.2 trillion won, setting a historical record for South Korean companies; SK Hynix's operating profit increased by 405% year-on-year, with the gross margin of its DRAM business breaking the historical peak of 80%. On July 10, it successfully achieved a secondary listing on the NASDAQ in the United States, with a market value exceeding 1 trillion dollars. Across the ocean, American storage giants also delivered impressive financial results: Micron Technology's revenue for the third quarter of fiscal year 2026 (ending May 2026) was $41.46 billion, a year-on-year increase of 346%, with a GAAP net profit of $28.24 billion, a year-on-year increase of 1398%, and a gross margin of 84.6-84.9%. The fourth quarter guidance indicates revenue of $49-51 billion, with EPS reaching $30-32, significantly exceeding expectations; SanDisk, Western Digital, and Seagate all reported strong performance, with stock prices significantly rising amid fluctuations over the past year.

Five Driving Factors of Strong Profitability in the Storage Sector

For a long time, the storage chip industry has been a typical traditional short-cycle industry, with a general cycle of about 3-4 years, an upturn lasting 2-3 years, and a downturn lasting about 1-1.5 years, with fluctuations significantly greater than the overall semiconductor industry. Each complete cycle of "recession → bottoming → upturn → peak → downturn" is primarily driven by supply-demand mismatches, manifested as a self-regulating mechanism of "price increase → capacity expansion → oversupply → price drop → production reduction → recovery": during prosperous times, manufacturers simultaneously expand production capacity, leading to a concentrated release of new capacity, price plummeting, and the entire industry falling into losses; subsequently, manufacturers collectively cut capital expenditures, and when demand warms up, they welcome another prosperous period. This cycle constitutes the unique periodicity of the storage industry.

Happiness comes very suddenly. In the past two years, driven by the wave of artificial intelligence (AI), the global storage industry is undergoing a structural paradigm shift, with traditional short-cycle patterns being extended into an unprecedented "super cycle." From the information disclosed in the capital market, storage chips (especially high-end storage) have become a core segment with strong profitability in the AI industry chain Overall, the sudden prosperity of the global storage industry is fundamentally reshaped by AI technology's demand for data storage, leading to a profound transformation of underlying business logic and a structural imbalance in supply and demand.

(1) Explosive growth in AI demand, with single-machine storage capacity increasing several times

The AI technology revolution is reshaping storage demand from both the cloud and edge sides, driving the industry to upgrade to high performance, large capacity, and low power consumption, initiating a super growth cycle. The storage industry has evolved from traditional supporting components and standardized cost items to a "core infrastructure" and strategic resource for computing power that determines the performance ceiling of AI systems. The most intuitive change is that the DRAM (Dynamic Random Access Memory) usage of a single AI server is 8-10 times that of traditional servers, and the usage of NAND flash memory exceeds three times. It is expected that the shipment volume of AI servers will increase by more than 150% year-on-year by 2026.

Specifically, the demand structure of data centers has undergone profound changes: the demand for memory bandwidth and capacity for training and inference of large AI models is growing exponentially, driving the storage industry into a new growth cycle; on the cloud side, large model training and data center expansion are boosting the demand for high-performance storage such as DDR5, high-capacity SSDs, and HBM (High Bandwidth Memory). In particular, HBM has almost become a standard requirement for every AI server; without HBM, AI computing power cannot be fully unleashed. On the edge side, the integration of generative AI is leading a transformation in the smartphone industry, with AI smartphones driving another upgrade in single-machine storage capacity.

(2) Prices continue to soar, with industry profit margins reaching historic highs

The most significant feature of this storage cycle is that the wave of AI infrastructure and the surge in memory demand have driven storage chip prices to "uncontrolled increases," with price increases far exceeding historical levels, significantly enhancing the industry's profitability. In the first quarter of 2026, the contract price of DRAM surged by 90-95% in a single quarter, and the contract price of NAND Flash was raised from an expected increase of 33-38% to 55-60%. The performance in segmented markets is even more pronounced: for server DDR5, the contract price doubled in the first quarter of 2026, with an average price reaching $1.3-1.5/GB; for mobile DRAM, prices surged by 60-70% in the first quarter; HBM (High Bandwidth Memory) increased by 80-85% from the first quarter of 2025 to the first quarter of 2026. Looking at the overall operating profit margin of the storage industry, it reached a historical peak of 67% in the first quarter of 2026.

(3) Rigid supply shortage, leading manufacturers control pricing power

Supply constraints are a key factor in maintaining high profitability in the storage industry. Overall, the expansion cycle of the storage industry is relatively long: building new factories, adding production lines, and purchasing equipment and materials require a certain period, making it difficult for original manufacturers to rapidly expand production capacity in the short term; new storage wafer fabs take 2-3 years or even longer from groundbreaking to stable mass production, making it impossible to quickly fill the supply gap in the short term. Storage manufacturers have become market leaders with pricing power. Overseas cloud service providers are continuously increasing their investment in AI infrastructure, consistently boosting enterprise-level storage demand and driving the continued upward trend of the storage industry. In the first quarter of 2026, global eSSD capacity is expected to reach 430-450EB, but orders from cloud service providers have already led to supply tightness, with order fulfillment rates sometimes as low as 50% (4) Capital expenditure continues to expand, and the industry enters the mid-stage of the prosperity cycle

In response to strong market demand and optimistic expectations for the industry's future, leading storage manufacturers have accelerated the pace of capital expenditure expansion. Micron Technology has raised its capital expenditure for fiscal year 2026 to $20 billion. TSMC's capital expenditure plan for 2026 is set to reach $56 billion, a historic high, with plans to expand the "super large wafer fab cluster" in Arizona, USA, to meet the demand for AI chips. Corresponding to the capital expenditure expansion of storage manufacturers is the even more exaggerated scale of capital expenditure by cloud service providers. JP Morgan estimates that the four major U.S. cloud service providers (Google, Amazon, Microsoft, Meta) will see their capital expenditures increase by 80% year-on-year in 2026, exceeding $575 billion in total; the five largest hyperscale cloud service providers are expected to have capital expenditures exceeding $650 billion in 2026.

(5) Strong demand for enterprise storage, significant increase in gross margins

The market demand for non-data center businesses is also very strong, with gross margins growing more than those of data centers. The entire industry has entered a seller's market, with the growth in AI demand and capacity constraints being the main reasons for the cautious expansion in the industry. The capacity expansion in the storage industry is relatively conservative, which may lead to this round of the storage business cycle being longer and larger than expected.

Supply and demand dynamics determine the length of the storage industry's prosperity cycle

In the AI computing power supply chain, traditional low-end packaging or assembly links generally have gross margins of 8-15%, while high-end storage such as HBM and advanced packaging links see both volume and price rise, with gross margins stabilizing at 35-70% or even higher, leading by a significant margin. For example, Micron's latest financial report shows its gross margin exceeds 84%, and domestic storage companies such as Jiangbolong and Baiwei Storage have also achieved explosive growth in net profit in a single quarter. How long can this high prosperity in the storage industry last? Based on assessments from mainstream institutions and industry experts, the current storage "super cycle" driven by AI demand is expected to last until the second half of 2027 to 2028.

(1) Short-term outlook: 2027 remains the core period of the prosperity cycle

The supply-demand gap is expected to persist. The capacity of leading original manufacturers for 2026 has already been fully booked, putting the industry in a "hard shortage" state, with storage chip prices likely to remain high throughout the year. CITIC Securities believes that the storage industry is still in the mid-stage of a super prosperity cycle, with the tight supply-demand situation expected to last at least until 2027. Industry insiders analyze that storage chip prices will remain strong from 2026 to 2027, and while the gradual release of capacity can avoid severe shortages in the industry, it cannot completely solve the problem of insufficient supply.

From the price trend perspective, the first quarter of 2026 is the peak of this round of price increases. Starting from the second quarter, the rate of increase is expected to narrow significantly. By 2027, price growth is expected to drop to single digits or remain flat. This indicates that while the high profitability state is expected to continue, the rate of price increase may gradually slow down.

(2) Medium to long-term outlook: Supply-demand mismatch may continue until 2028

The storage industry is undergoing a deep change in its business model. In the past, storage was more like a commodity, with prices following the market, and contracts often based on quarterly or annual terms. Now, downstream cloud providers (such as Amazon, Microsoft, Google, etc.) and AI data centers are discussing signing long-term supply agreements of 3-5 years with some storage suppliers to secure critical supply of computing power in advance Most of these agreements clearly define terms such as price range, minimum purchase volume, customer margin, and advance payment, thereby transforming short-term fluctuations into long-term rigid demand, significantly enhancing the certainty of future performance for storage manufacturers. The storage industry will rewrite the cyclical logic of "price increase - capacity expansion - price collapse" into a new paradigm of advance payment locking volume, price stability, and visible profits. This means that the current storage industry has crossed the short-term price speculation phase and entered a new stage of "structural tight balance" supported by technological barriers and long-term demand. This change in business model may extend the prosperity cycle.

From the current supply and demand situation, considering the demand guidance from major downstream customers, the scheduling situation of upstream companies, capital expenditure, and capacity expansion, it is expected that the structural shortage of storage supply will continue until 2028. Founder Securities believes that the overall prosperity will last at least until the end of 2027, and new capacity may only gradually be released in 2028. The mismatch in supply and demand, combined with the significant increase in storage demand for training and inference brought about by AI, is rewriting the logic of the storage industry.

(3) The cyclical pattern remains unchanged, and high profits will inevitably lead to future oversupply.

Of course, we must recognize that the storage industry has indeed undergone structural changes, but the industry cycle has not disappeared; only the characteristics of the cycle have changed. As new capacity from overseas giants and domestic storage manufacturers (such as Changxin Technology and Yangtze Memory Technologies) is gradually released, market supply will begin to increase, and the tight supply-demand situation is expected to gradually ease. After 2028, prices may face downward pressure. Zhongtai Asset Management analyzes that although the storage demand curve in the AI era is steep, the capital expenditure of leading companies still has an upper limit, and prices will inevitably slow down once they reach a certain level. The view of Shenwan Hongyuan confirms this judgment, believing that overseas original manufacturers are accelerating the production of AI-related products, and there will be a supply gap in niche areas (referring to storage chips with smaller capacities, using mature processes, and specifically designed for certain application scenarios), driving prices up, but this is merely an AI spillover effect; the core cyclical logic remains. Whether the historical pattern of "continuous high prosperity in the storage industry has never exceeded 5 years" can be broken due to AI is still to be observed, and it is too early to draw conclusions now.

Future Concerns: Four Risks to Watch Out For

Although the long-term logic of the storage industry is robust, there are still hidden dangers and risks behind the prosperity and brilliance that require constant vigilance.

(1) Supply-demand mismatch risk: Capacity expansion may accelerate, leading to a cycle reversal.

Although the current supply and demand are tight, the nature of capital seeking profit determines that high profits will inevitably stimulate capacity expansion, which may lead to future oversupply. As the profit margins of storage companies remain high, leading manufacturers will increase capital expenditure for expansion. JP Morgan predicts that after five consecutive years of rising storage prices from 2026 to 2028, the supply-demand gap may narrow in 2028, and the industry will enter a normalization phase after a five-year continuous price increase cycle. UBS's upward revision of ASML's profit forecast also reflects this trend: the revenue growth rate of storage chips for 2027 has been raised from 35% to 50%, but the growth rate for 2028 has been lowered from 10% to 0%, reflecting expectations of normalization after a short-term explosion. Meanwhile, during the price increase cycle, midstream companies generally increase their inventory, and once the cycle reverses, high inventory will face impairment pressure (2) Technology Iteration Risk: Intensified Competition for High-End Products like HBM

As the core storage technology of the AI era, HBM is dominated by three giants: Samsung, SK Hynix, and Micron. According to data from the third quarter of 2025, the market share of HBM revenue for the three giants is approximately 57% for SK Hynix, 22% for Samsung, and 21% for Micron. As manufacturers accelerate the iteration of HBM technology: HBM4 is expected to be launched in 2026, with bandwidth doubling; both Samsung and SK Hynix plan to mass-produce HBM4 in 2026, while Micron plans to do so in 2025. Intensified technological competition may lead to a decline in product profit margins, especially when domestic manufacturers achieve breakthroughs in niche DRAM and NOR Flash fields, which could increase price pressure on traditional DRAM/NAND products. Additionally, if the commercialization of AI slows down, a global economic recession occurs, or new storage architectures emerge as technological substitutes, it could bring the downturn cycle forward.

(3) Market Concentration Risk: Intensified Head Effect, Difficult Survival for Small and Medium-Sized Manufacturers

The global storage market is highly concentrated, with overseas manufacturers in a leading position. DRAM is essentially monopolized by major players like Samsung, SK Hynix, and Micron. In pursuit of high profits from high-end products, the three giants actively "abandon low-end products for high-end ones," shifting over 70% of their advanced process capacity to HBM and high-end enterprise products, leading to a systematic compression of supply in the traditional storage market, resulting in a severe "crowding-out effect" and supply-demand imbalance in the general DRAM market. As technological barriers rise and capital expenditures expand, the survival space for small and medium-sized manufacturers may be further squeezed.

Shenwan Hongyuan analysis points out that there are differences in the prosperity of three major segments: storage modules, niche storage, and the two domestic storage chip leaders (Changxin Storage and Yangtze Memory Technologies). The storage module segment has the greatest performance elasticity, followed by niche storage, while the two domestic storage chains are relatively low. This reflects an intensifying trend of industry differentiation. It is expected that the stock price increases of some small and medium-sized manufacturers in the current capital market may have already priced in future expectations, and if subsequent financial reports fall short of expectations or AI capital expenditures slow down, it may trigger a valuation adjustment.

(4) Geopolitical Risk: Export Controls and Supply Chain Restructuring

While domestic manufacturers have made progress in the storage field, they also face challenges from external technological blockades. Yangtze Memory Technologies and Changxin Storage, as the two leading domestic storage chip manufacturers, have achieved breakthroughs in NAND and DRAM fields, but are still constrained by factors such as equipment imports, and technological catch-up will take time. According to data from Huayuan Securities, Yangtze Memory currently has three factories, two of which have had equipment moved in, with an effective capacity of about 170,000 wafers per month. The third factory is expected to start moving in equipment in the second half of 2026, with plans to reach a scale of 600,000 to 700,000 wafers. However, this expansion process may be affected by geopolitical factors.

Future Development Trends and Outlook

(1) Market Size: Expected to Exceed $1.1 Trillion by 2028

Mainstream data shows that the global storage market size is expected to be between $220 billion and $235 billion in 2025, with significant growth in the core storage chip markets of DRAM and NAND Flash In June 2026, JP Morgan raised its forecast for the total addressable market (TAM) of the global storage market for 2026-2028 by 37% to 53% compared to the model in March, expecting the TAM to reach USD 1.7 trillion by 2028. It emphasized that storage chips are transforming from traditional cyclical commodities to strategic core assets of AI infrastructure, and this round of storage supercycle will exhibit characteristics of "higher and longer." JP Morgan anticipates that AI demand will spread comprehensively from GPUs to CPUs, raising the forecast for the HBM (High Bandwidth Memory) market for 2026-2028 by 17% to 21%, with the supply-demand gap expected to persist until 2028.

(2) Technological Trends: HBM, DDR6, and 3D DRAM Lead Innovation

The AI technology revolution is the core driving force behind the development of the storage industry. The trend towards high performance, large capacity, and low power consumption in the storage industry determines the direction of technological innovation. Currently, key technologies in the storage industry include: HBM technology, with HBM3E already in mass production and HBM4 expected to launch in 2026, promising to double the bandwidth; DDR technology, with DDR6 about to be released, adopting the CAMM2 standard, significantly enhancing bandwidth and frequency; and new storage media, with new technologies such as 3D DRAM, SCM (Storage Class Memory), and PCIe 6.0/7.0 emerging.

(3) Competitive Landscape: Dominance of Leaders + Rise of Local Players

The global storage market presents a "dominance of leaders + rise of local players" pattern, with a deep adjustment in the supply-demand structure. Among overseas manufacturers, DRAM is monopolized by Samsung, SK Hynix, and Micron, with even higher concentration in HBM. The four giants dominate the NAND Flash market; domestically, Changxin Technology and Yangtze Memory Technologies (the "Two Storage" companies) along with other manufacturers are emerging as significant new forces. Changxin Storage has achieved breakthroughs in niche DRAM. Yangtze Memory is expanding production, with NAND Flash capacity planning reaching 600,000 to 700,000 wafers per month. GigaDevice holds a 12% market share in NOR Flash, ranking third globally and first domestically. Lanqi Technology is a leader in global memory interface chips, with a market share exceeding 40%. The acceleration of domestic substitution will bring unprecedented strategic opportunities to domestic manufacturers.

(4) Valuation Logic: Transition from PB to PE, Restructuring of Valuation Framework

In the context of the industry's prosperity cycle, the entire supply chain from storage modules to design, packaging and testing, manufacturing, and upstream equipment materials is expected to benefit. The fundamentals are significantly improving. The signing of long-term agreements will rewrite the logic of storage from cyclical to a new paradigm of visible profitability, with changes occurring in business models and valuation logic, beginning to return to normal operational performance and financial results. From a valuation perspective, the storage industry is undergoing a transition from price-to-book ratio (PB) to price-to-earnings ratio (PE).

Ultimately, this storage supercycle ignited by AI begins with artificial intelligence and will ultimately be tested by it. How long the current good times last and how far the prosperity cycle can extend does not depend on the scale of cloud parameters, but on whether AI can truly emerge from the digital world and transform into productive forces in the real world. Only when AI is validated as the most profound and far-reaching productivity revolution in human history, capable of large-scale implementation and creating actual value, will the demand for underlying computing power and storage not be fleeting The final chapter of this storage feast will be written by the effectiveness of AI in the physical world.

Clue Disclosure # rzcj@thecapital.com.cn