DRAM super cycle to last until 2027 on AI demand, says UBS

A historic supply-demand imbalance in the memory chip market will extend until the end of 2027, creating a super cycle not seen in three decades as artificial intelligence workloads consume manufacturing capacity. The surge in demand for high-bandwidth memory (HBM) for AI accelerators, combined with a traditional server upgrade cycle, will create a persistent supply deficit for DRAM chips, according to a new report from UBS.

"The AI-driven HBM demand is continuously蚕食ing DDR capacity," the UBS report said, highlighting a multi-year structural shift. The bank noted that the DRAM market's three-oligarch structure, consisting of SK Hynix, Samsung, and Micron, lacks the "competitive expansion" drive that would typically curb such price pressures.

The report forecasts that by the end of 2026, HBM-specific production will account for 25% of the industry's total front-end capacity, rising to 31% by 2027. This allocation to high-margin HBM chips, essential for powering GPUs from companies like Nvidia, leaves less capacity for conventional DDR5 DRAM just as enterprises begin a server hardware refresh cycle, further tightening supply.

The dynamic positions SK Hynix as a primary beneficiary, prompting UBS to raise its 12-month price target on the stock to 1.7 million Korean won. The bank's profit forecasts for the chipmaker are substantially above market expectations, suggesting investors have not fully priced in the duration and scale of the impending cycle.

SK Hynix Profit Forecasts Dwarf Consensus

UBS's financial projections for SK Hynix are significantly more bullish than current market views. The bank forecasts the company's 2026 operating profit will reach 286 trillion won, a figure 57% higher than the market consensus of 182 trillion won. The gap widens for 2027, with UBS projecting 443.5 trillion won in operating profit, which is 88% above the consensus estimate of 235.6 trillion won.

This optimism is rooted in the sustained pricing power the firm expects from the prolonged supply shortage across both HBM and conventional DRAM. UBS also projects SK Hynix will generate free cash flow of 143.8 trillion won in 2026 and 269.8 trillion won in 2027, corresponding to free cash flow yields of 21.6% and 40.5%, respectively.

HBM Leadership and ADR Catalyst

While competitors Samsung and Micron are also players, UBS sees SK Hynix maintaining its lead in the HBM market. The bank adjusted its market share assumptions for the next-generation HBM4 platform, assigning SK Hynix a 60% share, followed by Samsung at 30% and Micron at 10%. This assessment holds despite minor redesigns SK Hynix is undertaking for HBM4, which the report views as a localized optimization rather than a fundamental setback.

A potential near-term catalyst could provide a dual benefit for the stock. The report notes that a possible American Depositary Receipt (ADR) listing for SK Hynix could be paired with a stock buyback program in its home market. This would simultaneously improve access for international investors while directly supporting the share price in Korea.

This article is for informational purposes only and does not constitute investment advice.