Summary of Key Points
Samsung Electronics reported its best quarterly performance in history, with profits soaring by 1810% year-on-year. However, within 10 minutes of the stock market opening, its share price plummeted by 6%, resulting in a loss of over 250 billion RMB in market value. SK Hynix and A-share stocks related to the storage sector also experienced collective declines. The reason for this is not due to any sudden negative news, but rather the well-established capital market trend of "buying expectations and selling facts." Over the past six months, the storage industry has been excessively hyped due to factors such as the surge in AI demand and soaring prices. With the release of actual performance figures, all the positive factors have been factored into the stock price, and the market realized that the cycle may be reaching its peak, leading to a withdrawal of funds.
Detailed Analysis
1. Why does a better performance lead to a lower stock price? What does "buying expectations and selling facts" mean?
In simple terms, this means that investors had already anticipated strong performance and drove up the stock price in advance. When the actual results were announced, there was little interest in buying further shares, and some even took the opportunity to sell. Samsung's earnings, including a 1810% profit growth rate, a 20% price increase for the third quarter, and HBM orders scheduled until 2028, had all been widely discussed in the market for several months. By the time the financial report was released, these positives were already reflected in the stock price. For investors, this meant no surprises; those who expected better results were disappointed, while those who had already made a profit quickly sold their shares, causing the stock price to drop.
2. Why has the storage sector's rapid growth recently come to an end?
The storage industry saw dramatic gains over the past six months (Micron's share price rose by 230%, and the A-share storage index tripled), driven by the "AI + supply-demand gap":
- AI models require large amounts of high-bandwidth storage (HBM), leading the three major players—Samsung, SK Hynix, and Micron—to shift production capacity towards HBM. As a result, consumer-grade DRAM (used in phones and PCs) faced reduced production, widening the supply-demand gap and driving prices up by 90% in the first quarter, 50% in the second quarter, and 20% in the third quarter.
However, this logic is starting to weaken: price increases are becoming smaller (from 90% to 20%), and growth rates have peaked. Moreover, demand for regular DRAM has not fully recovered (phone manufacturers have reduced orders, while PC manufacturers are waiting and seeing). Additionally, stock prices have already reflected expected profits for the next few years; some companies that didn't even have direct involvement with HBM have seen their shares soar just because of the "storage" concept, creating a large bubble.
3. Are the giants' decisions to fund expansion at high prices a warning to the market?
Industry players like Samsung and SK Hynix understand market cycles better than ordinary investors. Their actions send clear signals:
- SK Hynix plans to raise $28 billion through an IPO on NASDAQ (potentially the largest foreign company IPO in U.S. history) to purchase lithography equipment and expand HBM production capacity.
- The South Korean government has announced a $520 billion investment to build storage wafer factories over the next decade, aiming to double DRAM production within five years.
There are many similar examples in history: during the internet bubble in 2000, Lucent raised $10 billion at its peak, only for its stock price to fall by 90% six months later; in 2021, when new energy was booming, CATL raised funds, but its stock price dropped significantly shortly thereafter. When giants fund expansion at high prices, they are signaling that prices are likely to drop once capacity increases and supply exceeds demand.
4. Is "this time different?" Don't ignore historical lessons
Many argue that AI and the higher barriers to entry in HBM technology make this cycle unique, but history shows that every cycle peak is followed by a decline:
- In 2017, people claimed there would be a surge in demand for cloud servers and that memory would always be in short supply; however, DRAM prices fell by 60% in 2018.
- In 2021, new energy drove storage demand, but the consumer electronics sector collapsed, causing storage prices to drop throughout 2022.
While there are differences this time (such as higher HBM barriers and stronger monopolies), the cycle remains the same. Demand for regular DRAM is weak, and many companies have been overhyped based on speculative concepts. Once the bubble bursts, these companies will suffer the most.
5. What should ordinary investors be aware of?
The storage sector is now in a "tail end" phase of the market cycle—most of the gains have been realized, leaving fewer opportunities and greater risks:
- Avoid chasing high prices; stock prices already incorporate expected future benefits, so entering now could mean buying into a falling market.
- Be cautious with concept stocks; those without actual HBM operations will experience the steepest declines.
- Pay attention to market signals: if storage prices slow down or expansion plans accelerate, consider selling your shares.
- Remember: no market ever only rises; bubbles always burst. Don't assume you can escape a crash at the last moment.
In conclusion, Samsung's earnings announcement served as a signal that the golden period of storage price increases has passed. Prices may still rise in the next one or two quarters, but stock prices have already reflected this. Ordinary investors should remain rational and not be misled by the illusion of continuous growth.
(End of analysis)