Written by: Rita
SK Hynix and Samsung Electronics have fallen more than 50% from their June peaks, resulting in price-to-earnings ratios of only 2 to 3 times based on consensus earnings per share estimates for 2027 to 2028. In a report dated October 16, 2026, Bank of America placed this valuation within the cyclical bottom range while maintaining super-cycle-level profit forecasts. The report concluded that this correction in memory stocks is disconnected from fundamentals and reflects excessive concern over a boom-bust cycle in AI-driven memory demand.
Bank of America’s framework consists of two layers. From a valuation perspective, the P/E ratio of 2 to 3 times is below the 4 to 7 times seen in previous upward cycles, and the P/B ratio is near 1.0 times the 2027–28E book value per share. From an earnings perspective, EPS in 2028 is expected to decline by a low single digit year-over-year, but absolute sales, operating profit, and EPS remain close to the 2027 peaks and record highs. Together, the valuation is priced at a cycle bottom, while earnings have not confirmed a downside trend.
The data center AI storage replacement demand covers LPDDR5, SOCAMM, HBM, and eSSD. More advanced GPUs and ASICs continue to increase the storage content per unit.
Valuation has dropped to the bottom range of the cycle.
Samsung Electronics has a P/E ratio of 3.0x for 2027E and 2.8x for 2028E; SK Hynix has a P/E ratio of 2.7x for 2027E and 2.3x for 2028E. Bank of America calculated these multiples using consensus EPS estimates from 2027 to 2028, placing both companies within the 2x to 3x range. During previous upward cycles, their P/E ratios ranged from 4x to 7x. Current multiples are 30% to over 50% lower.
The price-to-book ratio is near 1.0x book value per share for 2027-28E. Historically, such levels have occurred at cycle bottoms, characterized by high chip inventories, DRAM average selling prices declining by more than 50%, significant operating losses, and high borrowing costs. Currently, DRAM average selling prices have increased by 20% to 30% year-over-year, with none of the historical bottom conditions present.
Bank of America acknowledges softer 2028 profits, low quarter-over-quarter growth in 2027, and single-digit year-over-year decline in EPS for 2028. Sales, operating profit, and EPS in 2028 are expected to be near the 2027 peaks and record highs. Valuations remain low even with the softer 2028 earnings. The report concludes that the recent correction in memory stocks is disconnected from underlying memory fundamentals.
Hynix has pulled back below its 20-year average.
SK Hynix fell 57% from its June peak to October, exceeding the historical average correction of 51% over the past 20+ years. While the historical average correction lasted 15 months, this one took only 4 months—deeper and faster.
Over the past 20+ years, Hynix has averaged a 621% increase from trough to peak over approximately 25 months, followed by an average decline of 51% over about 15 months during corrections. It rose 1,314% from the 2003 trough to the 2006 peak, and 1,696% from April 2025 to June 2026. Each major downturn has been followed by a stronger recovery.
Current forward P/E ratios for 2027-28E are at 2 to 3 times, a level rarely seen outside of cycle bottoms. DRAM average selling prices are currently up 20% to 30% year-over-year, whereas historical cycle bottoms typically saw declines of 10% to 30%. SK Hynix is entering this correction with strong demand from AI infrastructure and HBM, and its long-term earnings drivers remain intact. The risk-reward profile resembles the formation of a historical bottom rather than the beginning of a structural downturn.
Investors show divergent sentiments between long and short positions.
Bank of America met with investors in Singapore this week; hedge funds are bearish, while most long-term investors are bullish. Bearish reasons include high borrowing costs for neoclouds, increased DRAM supply from China’s 4F² process, declining storage content per GPU, potential slowdown in AI capital expenditures or storage price growth, and earnings that may fall short of bullish consensus. The divergence between bulls and bears centers on cycle length, while their directional outlook remains aligned.
Bank of America responds point by point: Even with weaker profits in 2028, valuation multiples remain too low; China’s 4F² impact is limited; AI startups and new cloud providers have substantial backlogged orders; despite softer ASP assumptions after 2026, memory chipmakers still maintain high profit margins and return on invested capital (ROIC); shareholder returns are attractive, with dividends and buybacks potentially exceeding 10% of current market capitalization in 2027–28.
The global total addressable market (TAM) for storage is projected to grow from nearly $1 trillion in 2026 to over $2 trillion by 2030, with potential operating profits of $1 trillion and an industry market capitalization that could reach $10 trillion—up from current levels of just a few trillion dollars.
Q4 guidance and prices remain strong
South Asia Tech has issued a bullish guidance for Q4. Bank of America expects SK Hynix’s Q4 guidance on October 28 to show upward revisions in average selling prices and profit margins. Production of 12-layer sixth-generation high-bandwidth memory (HBM4) is ramping up strongly, with additional output of 8 layers from new orders; despite the recent 4 trillion KRW buyback, a special cash dividend remains possible.
October industry data remained strong. Contract prices for PC DRAM, both DDR5 and DDR4, rose over 15% month-over-month; spot prices held steady despite rising U.S. Treasury yields; South Korea’s semiconductor exports reached $12.2 billion in the first 10 days of October, down 26% month-over-month but near record highs; China’s memory imports in August totaled $37.3 billion, accounting for 57% of total imports, up 277% year-over-year.
In September, China imported $71.7 billion worth of integrated circuits, a 75% year-over-year increase and the first time exceeding $70 billion. Both memory imports and semiconductor exports indicate that demand has not collapsed. Guidance for the fourth quarter and pricing data provide fundamental support for valuation lows. Bank of America’s conclusion is that the deep correction resembles a cycle bottom but has not turned downward.
The valuation of stored shares has already been priced at the cycle bottom; whether the guidance for the fourth quarter can restore fundamental momentum to an upward trajectory is the key variable to watch next.
Disclaimer
This article is a compilation and interpretation by Chaoxiang Research of a third-party brokerage research report (Bank of America, October 16, 2026), combined with publicly available market information. The ratings, price targets, earnings forecasts, and related judgments cited herein reflect the views of the brokerage’s analysts and represent the position of their respective institution only; they do not reflect the views of Chaoxiang Research nor constitute any investment advice.
The market carries risks; make decisions independently. This article should not be used as a basis for buying or selling any securities.