Memory stocks are affected. China and oversupply are the big concerns

Memory chip stocks took a particularly hard beating this week amid broader stock market turmoil.

Two concerns add to the pressure: debate over whether Chinese competition threatens historical memory holders and speculation about when the market might become oversupplied.

Over the past five days, SK Hynix plunged 26%, Samsung fell 22% and Micron fell about 11%.

The first chills came earlier this week after China’s leading memory chip maker, ChangXin Memory Technologies, or CXMT, announced plans to roll out a server memory product based on a new architecture.

CXMT’s design would allow for higher storage density, raising concerns that the advance could lead the Chinese company to take global market share from rivals Samsung, SK Hynix and Micron.

However, a number of analysts have questioned whether CXMT would be able to scale up production of such advanced technology.

“The problem, of course, was with any architectural change… you can make the chips, but what yield do you get? If you only get 50 percent yield, you’re literally throwing half the chips in the trash because they don’t work very well,” Ben Barringer, global head of technology research at Quilter Cheviot, told CNBC’s “Squawk Box Europe” on Wednesday.

Kevin Cassidy, senior research analyst at Rosenblatt Securities, also said that CXMT’s developments are unlikely to add more memory to the market.

“We don’t think it’s going to change the supply-demand equation at all,” Cassidy told CNBC.

Traders are also discussing comments from an opinion column in Maeil Business Newspaper, a leading South Korean publication, in which a reporter urged the country’s government to prepare for a slowdown in the AI ​​boom and identify and develop the next big growth engine.

The author said two people – Professor Hwang of Seoul National University and Ahn Ki-hyun, executive director of the Korea Semiconductor Industry Association – expect to see a “flood of new offerings” that will turn the memory market “into a red ocean” in 2029, according to a CNBC translation. By 2030, “the supercycle could be over and the industry could enter a downturn,” the author said.

EspaceX And Tesla CEO Elon Musk responded to the article in an article on X, saying that China will “produce A LOT of RAM in 2028.”

Random access memory (RAM) is produced by SK Hynix, Samsung and Micron as well as CXMT in China.

An oversupply of RAM in 2029 would pose another hurdle for memory stocks, with prices falling and profit margins compressed. But such a distant forecast was not taken up by other analysts.

Typically, the biggest customers for memory chips are consumer electronics companies, because memory is a key component of devices such as smartphones and laptops.

But as the AI ​​boom accelerates, memory has also become a key part of Nvidia chips and other parts of the data center supply chain. As demand increased, supply tightened, leading to unprecedented price increases.

This led to huge increases in the stock prices of Samsung, SK Hynix and Micron, the three largest memory makers. But a key question for investors is whether the sector’s typical boom-and-bust cycle is finally changing.

Memory prices traditionally rise when demand exceeds supply, only to fall as manufacturers increase production and the market becomes oversupplied. Investors are trying to determine whether this cycle no longer exists or whether there has been a fundamental change.

All major memory manufacturers are currently in the process of increasing capacity, but it will take approximately three to five years for a factory to be built and commissioned.

This has led many analysts to predict that the shortage won’t ease until 2028 – but that won’t necessarily lead to huge price drops.

Counterpoint Research predicts that the price of DRAM, another key type of memory, will fall approximately 23% in 2028 compared to 2027. However, the price of DRAM would still be up approximately 230% compared to 2025.

“The current memory market is considered to be in an era of ‘new normal,’ and the down cycle will be different from previous ones,” Jeongku Choi, senior research analyst at Counterpoint Research, told CNBC.

“Suppliers and buyers enter into long-term agreements (LTAs) lasting 3-5 years, involving substantial upfront payments and upper and lower price limits established to ensure consistency. Therefore, even if a down cycle occurs, it is not expected to show the same sharp decline seen in the past.”

— CNBC’s Lisa Kim contributed to this report.