Memory is now worth more than oil. The three largest memory-chip makers — Samsung Electronics, SK Hynix and Micron Technology — each carry market capitalizations exceeding $1 trillion, putting them about 22 percent above the combined market cap of the world's three most valuable oil companies.
Memory is now worth more than oil. The three largest memory-chip makers — Samsung Electronics, SK Hynix and Micron Technology — each carry market capitalizations exceeding $1 trillion, putting them about 22 percent above the combined market cap of the world's three most valuable oil companies, even with Saudi Aramco weighing in at nearly $1.8 trillion on its own.
"Memory today has become so critical that customers now see memory price and supply uncertainties as key business risks," SK Hynix Chief Financial Officer Kim Woo-hyun said on the company's latest earnings call.
The shift reflects a structural transformation in how memory chips are bought and sold. For decades, dynamic random-access memory (DRAM) and NAND flash were treated as commodities prone to violent boom-bust cycles. Artificial intelligence changed that calculus. Hyperscalers — Microsoft, Alphabet's Google and Amazon.com — have locked in roughly two-thirds of global production for server-grade DRAM, according to UBS analyst Tim Arcuri, who estimates that long-term contracts could cover as much as 30 percent of total DRAM shipments next year. SK Hynix has said demand "far exceeds" its supply capacity for the next three years.
The valuation gap with the broader semiconductor industry is stark. Micron trades at less than 10 times projected earnings for the next four quarters, placing it in the bottom 10 percent of the S&P 500. Samsung and SK Hynix trade at six to seven times forward earnings. The PHLX Semiconductor Index averages about 26 times. Sandisk, whose market cap has nearly tripled since March, trades at roughly 10.5 times forward earnings. If the earnings materialize as Wall Street expects — Micron's adjusted per-share earnings hit $12.20 in the February-ended quarter, up from $1.56 a year earlier, and analysts project more than $60 for the fiscal year ending in August — the current multiples suggest significant upside.
Long-term contracts change the earnings math
Micron signed its first five-year supply agreement in its March earnings report and said at an investment conference last week that it has made "meaningful progress" on similar deals with other customers. Sandisk reported that five customers had signed long-term agreements covering more than a third of its production capacity for the next fiscal year. SK Hynix has not detailed its contract count but disclosed that demand exceeds supply capacity through 2028.
These agreements represent a fundamental shift in the industry's business model. Historically, memory makers built capacity on speculation and suffered when demand fell short. Now, hyperscalers are locking in volumes years ahead, accepting less pricing flexibility in exchange for guaranteed supply. UBS estimates that the shift could stabilize Micron's historically volatile earnings profile, reducing the amplitude of pricing swings that have punished the sector in past cycles.
The spending power behind this demand is enormous. Micron's adjusted per-share earnings in the February quarter exploded to $12.20 from $1.56 in the year-ago period. Wall Street expects earnings per share to top $60 for the fiscal year ending in August and to come in around $106 for the next fiscal year, according to estimates from Visible Alpha.
Why memory looks cheap despite trillion-dollar valuations
The disconnect between market cap and valuation multiple is the central tension in the memory trade. At less than 10 times forward earnings, Micron trades at a fraction of the broader semiconductor index. Samsung and SK Hynix are even cheaper at six to seven times. For context, Nvidia trades at roughly 35 times forward earnings, and the average stock on the PHLX Semiconductor Index commands about 26 times.
The bear case is that memory remains cyclical and that the current pricing environment will eventually revert. The bull case, backed by the contract structure now emerging, is that long-term agreements provide enough earnings visibility to justify a structural rerating. If Micron's multiple expanded to even 15 times forward earnings — still well below the semi index average — its market cap would approach $1.8 trillion, the level UBS's revised price target of $1,625 implies.
For investors, the question is whether the contract model can survive a downturn. If hyperscalers honor their commitments through a demand pullback, the memory industry will have achieved something it has never managed: earnings stability at scale. If they renegotiate, the old cycle returns. The next two earnings cycles from Micron, SK Hynix and Samsung will provide the first real test of whether these contracts hold.
This article is for informational purposes only and does not constitute investment advice.
