Samsung Falls Harder Than Micron—Is It a Value Play? Morningstar: Risk-Reward Ratio Undervalued; Memory High-Pricing Cycle to Last Until at Least 2027

The stock prices of the three major memory chip giants—Samsung Electronics, SK Hynix, and Micron Technology—have been collectively sold off this month, but this has also provided investors with a new opportunity to enter this rapidly growing sector. However, entering now requires a clear understanding of industry cycle patterns.

According to The Information, based on the historical pattern of sharp price surges and crashes, this round of memory price hikes is likely to cool down and retreat in the coming years. In the current volatile market, targeting the most undervalued stock is a viable strategy. From multiple indicators, Samsung appears to be the cheapest among the three.

Data shows Samsung's price-to-book (P/B) ratio is under 4x, less than half that of SK Hynix and Micron. S&P Global Market Intelligence data also indicates that based on 2027 expected net profits, Samsung's price-to-earnings (P/E) ratio is 4.4x, SK Hynix 4.6x, and Micron 6x.

However, due to the memory industry's extreme profit volatility and high risk of turning into losses, the P/E ratio has limited reference value.

Yu Jin Jie, Morningstar analyst covering South Korean chipmakers, said: "From a risk-reward perspective, Samsung is currently an undervalued weak stock. Compared to SK Hynix, its share price has greater room for valuation recovery."

Over the past year, Micron and SK Hynix saw stock gains of nearly 700%, while Samsung rose about 300%. In this month-long downturn, Samsung's decline exceeded that of Micron and matched SK Hynix's pullback. Among the three, only Samsung has not yet listed in the U.S. (Samsung has denied rumors of a U.S. IPO), creating a partial investment barrier.

In contrast, Micron is a U.S. company, and SK Hynix listed on Nasdaq last Thursday, raising $26.5 billion—the largest IPO by a foreign company in U.S. history. However, since listing, its stock has fallen 8%, with market concerns over long-term price trends and potential oversupply. With SK Hynix now listed in the U.S., Samsung has become the most obvious valuation洼地 (undervalued gap) among the three.

Samsung's semiconductor business covers AI-application memory chips and consumer electronics semiconductors. In Q1 2024, it accounted for 61% of group revenue, with the remainder from smartphones, home appliances, etc. The capital influx stems from explosive growth: semiconductor revenue surged 226% YoY in Q1, and operating profit skyrocketed 4,781%, contributing 94% of group operating profit. Samsung's semiconductor operating margin was 11% last year, with free cash flow per unit of revenue higher than Micron's (Micron's FY2025 operating margin is only 4%).

Micron and SK Hynix saw near-term revenue surge as downstream customers passively accepted price hikes. According to Yu Jin Jie's estimates, Samsung raised its prices in the June quarter—DRAM by 42% and NAND by 93%. Samsung's recently disclosed Q2 2024 revenue rose 129% quarter-on-quarter, with full financial results to be released on July 30.

Yu Jin Jie forecasts the industry will enter a downturn cycle between 2029 and 2030, when long-term supply agreements (LTAs) signed this year will expire en masse. Price hikes have already been passed through to end products, forcing companies like Apple to raise prices.

Facing surging demand, all three giants are planning capacity expansion: SK Hynix intends to use IPO proceeds for expansion, aiming to at least double capacity within five years; Samsung revealed its first wafer fab in Yongin will start operations two years earlier, in 2029; Micron last week committed up to $250 billion in U.S. fab investments by 2035.

It takes 1–2 years from new capacity completion to mass production. If demand weakens, oversupply becomes highly likely. Taiwan's Nanya Technology is also ramping up, increasing competitive risks.

However, Yu Jin Jie believes severe imbalance is unlikely in the next few years. The core reason is that SK Hynix's new Yongin complex is expected to be completed in early 2027, with equipment procurement and installation taking at least another year before production starts. This means memory makers' pricing power will persist for some time, allowing investors to catch the tail end of this AI memory boom.

"The high-price chip cycle will last at least until 2027," said Yu Jin Jie. "2028 will be the real test period. I don't have full confidence in demand trends at that point."