Key Points
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A 36-gigabyte HBM3E chip reportedly fetches about $2,100 on the spot market, four to five times its long-term contract price.
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Korea’s DRAM exports fell about 13% by volume from May to July while their value rose about 19%.
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SK Hynix’s operating profit jumped 61% quarter over quarter to a record 60.5 trillion won in the second quarter.
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One quick way to test whether a boom has peaked is to look at what buyers are still willing to pay. A 36-gigabyte chip of HBM3E, the high-bandwidth memory (HBM) that feeds artificial intelligence (AI) processors, sells for about $2,100 on the spot market, where chips trade for immediate delivery.
Long-term supply agreements price the same product at roughly 500,000 to 700,000 won (about $370 to $510), according to reporting this week from the Seoul Economic Daily. In other words, buyers who need memory today are paying four to five times the contract price to get it.
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Memory is a famously cyclical business. But cycles turn when supply catches up with demand, and prices are where that shows up first. And from the spot market to Korea’s export data, the prices are pointing the other way.
No company has more riding on this than memory specialist SK Hynix (NASDAQ:SKHY). The growth stock trades around $170 as of this writing, about 13% below its 52-week high.
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A four-to-five-times premium
Most of the industry’s output is already spoken for. SK Hynix said in its late-July second-quarter report that it has finalized long-term agreements with about 10 customers, including key strategic partners, with discussions ongoing with other major clients. Those deals lock up much of the tech company’s output for years at negotiated prices.
After all, a buyer who believed memory prices were about to roll over wouldn’t pay four to five times the contract rate for chips today. They’d wait. That spot buyers keep paying up instead says the chips simply aren’t available at anything close to contract prices.
Sure, the spot market is a thin slice of overall memory volume, and thin markets can overshoot. But when memory cycles have rolled over in the past, spot prices have tended to crack first, sliding below contract levels as buyers step back. A premium this wide is arguably the opposite signal.
Korea is shipping fewer chips for more money
Korea’s export data tells the same story from a different angle. In May, the country exported about 682 million DRAM chips worth $11.4 billion, according to the same report.
By July, volume had fallen about 13% to about 592 million units, while the value of those shipments rose about 19% to $13.6 billion. The average unit price jumped about 37% in two months, from $16.76 to $22.90.
At a supply driven peak, new supply would flood in, volume would climb, and unit prices would flatten or fall as competition returned.
Instead, producers are shipping fewer chips and collecting more money for them, which is what I’d expect as production lines steer toward pricier AI memory and the remaining supply gets rationed by price.
That combination of falling volume and rising value isn’t what a market coming back into balance looks like.
Has the memory cycle peaked?
The boom is showing up in SK Hynix’s own results, too. Capturing how fast this cycle is still compounding, SK Hynix’s second-quarter revenue came in at 79.3 trillion won (about $58 billion), up 257% year over year. Operating profit did even better, surging 557% year over year to a record 60.5 trillion won (about $45 billion), a 76% operating margin. And the trajectory is still climbing, not rolling over: operating profit went from 9.2 trillion won a year ago to 37.6 trillion won in the first quarter to 60.5 trillion won in the second, a 61% jump in one quarter.
The pricing pressure hasn’t let up since, either. Market researcher TrendForce expects conventional DRAM contract prices to rise 13% to 18% in the third quarter from the second, with NAND flash prices up 10% to 15%.
Of course, this cycle will end the way memory cycles usually end — with too much supply. Prices like today’s eventually invite a wave of new capital expenditures across the industry. And a slowdown in AI spending could turn the data quickly.
SK Hynix carries a company-specific risk, too. Samsung Electronics (OTC:SSNLF) is ramping up rival HBM4 shipments, and a stronger second supplier could cut into SK Hynix’s share of the boom even if memory prices stay high. Counterpoint Research reported Thursday that SK Hynix’s HBM revenue share fell from 58% to 50% in the second quarter, while Samsung’s rose from 21% to 33%.
Memory investors should expect volatility along the way. But a peak should be visible somewhere in the numbers — a shrinking spot premium, unit prices flattening, export volumes recovering. None of that is happening yet, so I think the peak calls are early.
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Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
