Summary of Key Points
Recently, storage stocks such as Delmicron, Micron, and Samsung have experienced significant declines. The root cause is the complete end of the narrative that supported their high valuations—the “storage supercycle.” Module manufacturers have reached the peak of their profits by exploiting price differences in inventory timing; their performance has declined quarter-over-quarter. The market has shifted from treating storage stocks as growth stocks to recognizing them for their cyclical nature. Downstream buyers are becoming resistant to continuous price increases, resulting in narrower price gains. Additionally, the upcoming listing of ChangXin Technology will divert funds, pushing storage stocks into a revaluation phase, and investors need to be cautious.
Detailed Analysis
1. Module Manufacturers as “Advanced Resellers”
The storage industry is divided into upstream players (such as Samsung and Yangtze Memory, which produce memory chips) and midstream players (like Delmicron). Delmicron does not manufacture the chips but purchases them from the upstream companies, combines them with its own developed controllers and firmware, and then sells the resulting solid-state drives and memory modules to downstream customers.
Its profit model relies on price differences—buying low and selling high. The “advanced” aspect lies in the use of proprietary controllers and firmware. More importantly, accounting rules play a role: costs are calculated based on the weighted average at the end of the month. During price increases, the lower-cost chips purchased earlier result in higher profits (for example, Delmicron’s gross margin was 57% and net profit margin was 44% in Q1 2026). Conversely, during price declines, the high-priced chips that haven’t been sold yet result in substantial losses (a loss of 118 million yuan in the first half of 2025). This business is entirely dependent on the storage price cycle; profits soar when the cycle is upward and plummet when it is downward.
2. 50-Fold Growth in Revenue, but a Signal of Profit Peak
Delmicron’s mid-year report forecasted a 50-fold increase in revenue year-over-year. However, upon closer inspection, Q1 profits were 3.3 billion yuan, while Q2 profits were only 2.3-3.1 billion yuan, showing a 5%-30% decline quarter-over-quarter, despite a 25% increase in revenue—typical of “increased revenue without increased profit.”
The reason is simple: the previously purchased low-cost chips have been used up, and new purchases are made at the higher market prices, bringing costs in line with sales prices. The period when module manufacturers could maximize profits by selling high-priced products at lower costs from previous inventory has ended.
3. Reversal of Valuation Logic: From “Storytelling” to “Calculating Reserves”
Storage stocks soared over the past year (with Delmicron’s stock price increasing by 11 times) because institutions treated them as growth stocks, fueled by the narrative of “shortage leading to skyrocketing prices and a supercycle.”
Now that the half-year profits are available for analysis, the market has become more realistic: questions such as “how much low-cost inventory remains?” and “will gross margins decline in the next quarter?” are being raised. A static PE ratio of 150 times may seem high, but the dynamic PE ratio, based on the mid-year report’s annualized figures, is only 8 times—this is a classic characteristic of cyclical stocks: valuations are lowest at the peak of profitability because the market realizes that current profits are not sustainable.
4. Downstream Resistance to Price Increases, and the Cycle Is Turning Down
Previously, storage prices could rise by 60%-100% in a single quarter, but the expected increase for Q3 is now only 10%-18%. Why? Downstream buyers are becoming unwilling to pay higher prices for phones and computers, and manufacturers are reluctant to continue raising their procurement costs.
If storage prices fall in 2027, module manufacturers’ profits could be significantly reduced—this is a reminder of the previous cycle’s decline (Delmicron was still losing money in the first half of 2025). The narrowing of price increases is a precursor to a cyclical reversal.
5. ChangXin’s Listing Diverts Funds, and Module Manufacturers Lose Favor
ChangXin Technology is a domestic memory chip manufacturer with a higher status than module manufacturers. Investors prefer to invest in established upstream companies. With ChangXin’s listing, funds will flow from module manufacturers to the original producers, further accelerating the decline in storage stock prices.
Conclusion
The decline in storage stocks is not accidental but a natural outcome of the cycle returning to its normal trajectory: module manufacturers’ profits have peaked, valuation logic has reversed, downstream buyers are resisting price increases, and new players are diverting funds. The once-famous “supercycle” narrative is no longer valid. Investors must recognize the cyclical nature of the storage industry and stop being misled by the growth stock narrative.