Memory Chip Stocks Drop Amid China Competition and 2029 Oversupply Fears

Memory chip stocks have suffered particularly large losses this week amid broader equity market turmoil. SK Hynix shares have plunged 26% over the last five days. Samsung shares have fallen 22% over the same period. Micron shares have dropped around 11%. Investor concerns about competition from China and potential memory chip oversupply have added pressure to memory stocks.

The initial concerns emerged at the start of the week after China's leading memory chipmaker, ChangXin Memory Technologies (CXMT), announced plans for a server memory product based on new architecture. CXMT's design would allow higher storage density, raising concerns that CXMT could take global market share from Samsung, SK Hynix and Micron. However, several analysts questioned whether CXMT could scale production of such advanced technology. Ben Barringer, global head of technology research at Quilter Cheviot, said on Wednesday that an architectural change raises questions about manufacturing yields. Barringer said a hypothetical 50% yield would mean discarding half the chips because those chips did not work well. Kevin Cassidy, a senior research analyst at Rosenblatt Securities, said CXMT's developments were unlikely to add memory supply or change the supply-demand balance.

Traders are also discussing an opinion column in South Korea's Maeil Business Newspaper that urged the country's government to prepare for an AI slowdown and develop the next major source of growth. The columnist wrote that Seoul National University Professor Hwang and Korea Semiconductor Industry Association Executive Director Ahn Ki-hyun expect new supply to create intense memory market competition in 2029. The columnist said the memory supercycle could end and the industry could enter a downturn by 2030. SpaceX and Tesla CEO Elon Musk responded that China "will be making a LOT of RAM in 2028." SK Hynix, Samsung, Micron and CXMT produce random access memory, or RAM. An oversupply of RAM in 2029 would put further pressure on memory stocks through lower prices and narrower profit margins. However, other analysts have not echoed an oversupply forecast that far into the future.

Consumer electronics companies have typically been the biggest memory chip customers because smartphones and laptops require memory. The AI boom has also made memory a key component of Nvidia chips and other parts of the data center supply chain. Increasing demand has tightened supply and driven unprecedented price increases. Those price increases have fueled large share price rallies for Samsung, SK Hynix and Micron, the three biggest memory makers. Investors are questioning whether the industry's traditional boom-and-bust cycle has fundamentally changed. Memory prices have traditionally risen when demand exceeds supply. Memory prices have then fallen as manufacturers expand production and the market becomes oversupplied.

All major memory makers are expanding capacity, but factories take around three to five years to build and begin operating. That delay has led many analysts to forecast that the shortage will not ease until 2028. However, an easing shortage might not necessarily produce large price declines. Counterpoint Research forecasts that DRAM prices will fall around 23% in 2028 compared with 2027. However, Counterpoint Research expects DRAM prices in 2028 to remain around 230% above 2025 levels.

Jeongku Choi, senior research analyst at Counterpoint Research, said the memory market has entered a new normal and the next downturn will differ from previous downturns. Choi said suppliers and buyers enter three- to five-year long-term agreements involving substantial upfront payments and upper and lower price limits. Choi said those arrangements mean that even a downturn is not expected to produce the sharp price declines seen in the past.