According to Zhitong Finance APP, during the last week of October, AI storage chains entered a period of concentrated earnings reports. Two representative companies nearly simultaneously announced positive earnings surprises, yet the market responded with sharply divergent stock price movements.
SK Hynix (SKHY.US) reports strong earnings and returns, driving its stock price upward despite market conditions. According to its latest financial report, SK Hynix recorded revenue of KRW 10.461 trillion for the third quarter of fiscal year 2026 (ended September), a 328% year-over-year increase and the first time quarterly revenue surpassed KRW 10 trillion; operating profit reached KRW 8.333 trillion, up 632% year-over-year and marking the sixth consecutive quarter of record highs, with an operating profit margin of 80%; net profit amounted to KRW 3.977 trillion, up 216% year-over-year, also at a record high. The company attributed its performance to rising prices for key products driven by demand for AI memory (HBM) and high-value-added products.
On the same day, SK Hynix announced its 2026 shareholder return plan: building on the previously completed share repurchase and cancellation of KRW 40 trillion, it is adding a further KRW 60 trillion in returns, bringing the total annual shareholder return to over KRW 100 trillion, with cash dividends exceeding KRW 30 trillion. The company also disclosed that it has signed long-term agreements (LTAs) with 14 major customers, securing capacity equivalent to more than 50% of its total production for 2027–2028, and expects memory chip supply shortages to persist until 2030; the sixth-generation HBM4 will become the primary product starting in the fourth quarter.
Following the announcement of the earnings report and return plan, as of press time, SK Hynix's stock rose nearly 8% on the Seoul market and initially extended its gain to around 7% in after-hours U.S. trading.
Seagate also reported record profits and guidance that significantly exceeded expectations, but its stock was sold off after hours. According to Seagate Technology’s first-quarter fiscal 2027 results (ended October 2, 2026), the company generated revenue of $4.233 billion, a 61% year-over-year increase, surpassing the analyst consensus estimate of $4.15 billion; non-GAAP diluted EPS came in at $7.68 (compared to $2.61 in the same period last year), exceeding Wall Street’s expectation of $7.45. GAAP diluted EPS
$7.59; non-GAAP gross margin of 57.8% (GAAP 57.3%), non-GAAP operating margin of 50.7% (GAAP
48.8%); non-GAAP net profit of $1.781 billion. Free cash flow reached $1.479 billion, a quarterly record; approximately $1.2 billion in debt principal was repaid during the quarter, reducing total debt to $2.4 billion at quarter-end, and an additional $750 million was repaid afterward, bringing total debt down to $1.6 billion. The company announced a 3% increase in the quarterly cash dividend to $0.76 per share, returning $568 million to shareholders through dividends and buybacks this quarter.
For the upcoming quarter, Seagate forecasts revenue of $4.8 billion (±$100 million) for the second fiscal quarter of fiscal year 2027 and non-GAAP diluted EPS
$9.20 (±$0.20), both above the analysts' previous expectations of $45.5 billion and $8.66.
However, this earnings report, which surpassed expectations on both performance and guidance, was met with an 8% drop in after-hours trading; as of Tuesday's close, the stock had declined approximately 35% from its all-time closing high on June 22.
Within the same AI storage sector and the same earnings window, both "profit warning rallies" and "profit warning declines" coexist, creating a stark divergence in this earnings season.
The "price differential" for profit sustainability
The market reacted differently, primarily because of differing pricing on how long their profitability can last, not due to a deterioration in Seagate's fundamentals.
Seagate’s underlying fundamentals have not shown any signs of deterioration. According to statistics, analysts have not lowered their earnings forecasts for Seagate even once over the past 30 days, and its nearline capacity has been allocated through 2027, with contract prices for fiscal year 2027 already locked in. In other words, the selling pressure stems more from “overly high expectations and crowded positions following a significant rally this year.” Analysis notes, “After the stock surged sharply earlier this year, Wall Street has scrutinized Seagate more closely over the past few months; its record-breaking earnings performance has now become a baseline expectation rather than a catalyst for buying.”
In contrast, SK Hynix has delivered to the market a combination of "timing and signals": not only did it exceed earnings expectations, but it also added shareholder returns in the hundreds of billions of Korean won and long-term contracted volumes. Counterpoint
Director of Research, MS
Hwang believes that corporate quarterly earnings "have not yet reached their peak, and the upward momentum will last at least until 2027." This surge is primarily driven by sharp increases in traditional DRAM and NAND prices, not just HBM. Macquarie estimates that storage accounts for approximately one-third of all expenses in AI data centers, and HBM prices are expected to more than double by 2027.
Notably, SK Hynix's third-quarter net profit (KRW 3.977 trillion) fell short of some market expectations (approximately KRW 6 trillion), yet its operating profit and return program still drove the stock price—further illustrating that the market rewards “certainty signals and shareholder-friendly actions,” rather than just broad outperformance on a single profit line.
Structural constraints on the supply side differ
The deeper reason lies in the differing supply-side constraints between the two niche markets.
One side of memory/HBM is "tight." SK Hynix has signed long-term agreements with 14 customers, securing over 50% of its total capacity for 2027–2028. KB Securities analyst Jeff
Kim noted that over 70% of South Korean chip manufacturers' planned 2027 output is covered by five-year supply agreements, with less than 30% flowing to other customers such as smartphone and PC makers. Samsung and SK Hynix together control approximately 60% of DRAM revenue and over 80% of HBM revenue, and the "crowding-out effect" of HBM production lines on DRAM wafers keeps standard memory supplies tight even as overall capacity expands. Citi analyst Peter
Lee views the memory supercycle as lasting nine years; another Citi perspective suggests the current cycle is "poised to outperform the 2001–2007 upward cycle" and expects the total HBM capacity per AI system to increase from 20.7 TB to 110.6 TB (a 434% increase).
Concerns over excess supply on the HDD front are mounting. Seagate’s decline was partly triggered by supply-side competition news: Toshiba reportedly plans to nearly double its annual HDD production capacity for AI data centers by fiscal year 2027, raising fears of oversupply. Meanwhile, Wells Fargo lowered its Seagate price target from $1,180 to $865, and JPMorgan reduced its target from $1,240 to $1,050. The data storage industry has historically been cyclical, and any signal of weakening demand or expanding supply tends to unsettle Wall Street.
Of course, Seagate is not without a hedging narrative. CEO Dave
Mosley stated in the official earnings press release that the creation, retention, and reuse of data continue to compound storage demand, noting that “long-term customer demand visibility supports our view of a multi-year growth phase,” and emphasized meeting exabyte-scale needs through increased areal density via the HAMR (heat-assisted magnetic recording) roadmap while maintaining supply discipline. However, unlike memory manufacturers whose demand is already locked in by long-term contracts, HDD demand remains more dependent on cloud providers’ capital expenditures—a variable currently under macroeconomic scrutiny.
The double-edged sword of valuation discount
On a valuation basis, the entire storage/memory sector is currently trading at multiples significantly below the broader market. According to statistics, Micron (MU.US) has a forward P/E ratio of approximately 5x, SanDisk (SNDK.US) is below 6x, Western Digital (WDC.US) is around 12x, and Seagate is about 15x—all below the S&P 500 (approximately 19x) and the Nasdaq-100 (approximately 20x).
Low multiples may serve as both a justification for overselling and a contrarian warning of a cycle peak. Some Wall Street analysts caution that historical cyclical patterns in memory demand make these low multiples a red flag; however, the scale and speed of AI infrastructure development could render historical cycles irrelevant. According to institutional price targets, Seagate implies a potential upside of over 70% over 12 months, while SanDisk exceeds 80%, ranking among the top seven in return potential within the S&P Information Technology sector.
Morningstar Research Director Lorraine
Tan presents a cautious scenario: AI-related stocks could drop another 20%-30% before becoming “buyable,” with the risk lying in the possibility that capital expenditures by hyperscale cloud providers have peaked, which would flatten the demand curve for HBM regardless of supply discipline. D.A.
Davidson analyst Gil
Luria is bullish, setting a $2,000 price target for Micron, stating that this is a supercycle driven by the convergence of GPUs, CPUs, and memory. The market is pricing in the end of the storage cycle, while demand for AI computing power continues to grow.
Asymmetric transmission of tightened AI financing
Zooming out to the macro level, the backdrop for this divergence is a tightening AI funding environment, and this macro pressure affects the two companies asymmetrically.
Jefferies analyst Christopher
Wood advised investors in a report to “closely monitor credit spreads for any signs that markets are no longer willing to finance the ongoing AI capital expenditure boom”: Oracle’s (ORCL.US) five-year credit default swap (CDS) spread rose from 186 basis points on September 11 to 288 basis points, while CoreWeave’s (CRWV.US) spread increased from 749 basis points to 1,118 basis points—levels not seen since the start of the AI capex cycle in early 2023; the report also noted that forward earnings growth expectations for global AI stocks are projected to slow from around 100% in 2026 to 30% in 2027 and 22% in 2028, with AI stocks trading at approximately 23 times forward earnings compared to about 13 times for non-AI stocks.
Meanwhile, NVIDIA (NVDA.US) CEO Jensen Huang stated in an interview that there is a “scarcity of capital,” with “demand for capital far exceeding its availability.” It was also reported that Oracle invoked a force majeure clause at its New Mexico data center, CoreWeave’s bond yields have surged and its stock price has plummeted, and Firmus
Grid has withdrawn its IPO plans, and Nscale is under pressure due to Microsoft's exit from its UK project—these events collectively point to financing and construction challenges in AI infrastructure.
This means the key to the transmission mechanism is whether demand has been contracted. Roundhill Investments CEO Dave
Mazza believes that "if the four major players can prove that their order backlog consists of signed contracts rather than anticipated orders, the debate over the memory cycle peaking would be delayed by a year." This is precisely why SK Hynix, with its long-term volume commitments, gains a "profit visibility" premium, while Seagate's HDD business sits further downstream in the cycle and faces challenges from Toshiba's capacity expansion and rising component costs (Seagate's CFO).
Gianluca Romano acknowledged on the earnings call that the higher costs of certain external components are a reason why the company is under greater pressure amid the same macroeconomic headwinds.
It is important to emphasize that Jefferies explicitly stated in the report that “it does not believe AI project financing has stopped,” but rather views the widening of credit spreads as an “early warning signal to monitor.” In other words, macroeconomic pressures are an “amplifier,” not a definitive conclusion.
Connecting these clues reveals a clear transmission chain: macroeconomic tightening in financing has lowered risk appetite and profit duration expectations across the entire AI chain; however, within the sector, memory/HBM benefits from long-term contracts securing volume and concentrated market share (Samsung and SK Hynix control over 80%).
HBM revenue, coupled with structural supply constraints, offers higher profit visibility, enabling positive feedback even amid headwinds; whereas Seagate's HDD business, being further downstream and more cyclical, faces Toshiba's capacity expansion and rising component costs, with demand heavily reliant on cloud providers' capital expenditures, which are currently under macroeconomic scrutiny. Thus, the same macro headwinds, transmitted through differences in profit visibility, result in "earnings upgrades."
the divergence between "positive earnings guidance" and "decline".
Nevertheless, this explanatory framework is not conclusive. If Seagate subsequently announces long-term volume commitments of a similar scale, if Toshiba’s capacity expansion plans are disproven, or if hyperscale cloud providers significantly reduce their capital expenditures, the logic behind the divergence would need to be revised. Additionally, the bearish perspective still holds weight—“Big Short” Michael
Burry has converted his short position in Micron into put options, believing that the structural shortage driven by current AI infrastructure build-out is temporary and that the industry will return to its cycle of boom and bust within two years; Professor Kwon Seok-jun from Sungkyunkwan University also warned that if AI demand falls short of expectations, major memory manufacturers’ expansion could lead to oversupply in the industry by 2028, while Morgan Stanley estimates that by 2028, China will account for approximately 30% of global DRAM net wafer capacity growth.