Storage chips are in "serious shortage," and the price increases of DRAM and DDR are "unstoppable." UBS raises target prices for Samsung and SK Hynix

The storage chip industry is entering a period of "severe shortage," with strong demand and limited capacity expansion driving DRAM prices into a robust upward cycle. Against this backdrop, UBS has significantly raised its expectations for DRAM contract prices and increased the target stock prices for industry giants Samsung Electronics and SK Hynix, believing that the price increase momentum will last at least until the end of 2026.

According to the Wind Trading Desk, UBS pointed out in a research report released on November 3 that its latest industry survey shows that negotiations for DDR memory contract prices in the fourth quarter of 2025 are proceeding with positive momentum, with a quarter-on-quarter increase expected to reach 21% or higher. The report clearly states, "DRAM suppliers clearly have the upper hand."

Based on the strong price outlook, UBS raised SK Hynix's 12-month target price from 640,000 won to 710,000 won and maintained its "Buy" rating, calling it the "preferred" choice in the memory sector. At the same time, Samsung Electronics' target price was also raised from 118,000 won to 128,000 won. As a result, UBS has upgraded the revenue and profit forecasts for both companies for 2026 and 2027.

Behind this round of price increases is the surge in demand for high-bandwidth memory (HBM) driven by artificial intelligence (AI), coupled with a robust upgrade cycle for traditional servers. As manufacturers prioritize limited wafer capacity for more profitable HBM, the supply of traditional DDR memory has been squeezed, exacerbating the market's supply-demand imbalance. UBS predicts that the DRAM upcycle will last at least until the first quarter of 2027.

Suppliers Hold Pricing Power, DDR Price Increase Will Continue

UBS's report details the strong position of suppliers in the current market. According to the bank's latest industry survey, negotiations for DRAM contract prices in the fourth quarter of 2025 continue to show positive momentum, with significant price increases across major categories.

The report cites data from market research firm Trendforce, indicating that the contract price trends for PC DDR4 and DDR5 in October suggest that if prices remain stable for the remainder of the fourth quarter, the average quarter-on-quarter increase for the entire quarter will reach 25% and 26%, respectively.

At the same time, UBS's survey indicates that contract negotiations for server DDR5 are trending towards a quarter-on-quarter increase of 20% or higher. In the mobile device DRAM sector, some supplier quotes are demanding price increases close to 40%, although UBS expects the final transaction price increase to be around 25%.

Based on the updated supply-demand model, UBS has raised its expectations for DDR mixed contract prices, forecasting a quarter-on-quarter increase of 21% in the fourth quarter of 2025 (up from a previous expectation of 17%). The bank also predicts that the positive price increase momentum will extend from the originally expected end of the third quarter of 2026 to the end of the fourth quarter of 2026.

AI Demand Squeezes Traditional Memory Capacity

The core factor driving this round of storage chip price surges is a structural supply-demand imbalance, with AI being a key variable. UBS analyzes that the memory industry is facing a "potential severe shortage," primarily driven by four major factors:

1. Strong HBM demand driven by AI.

2. Steady traditional server upgrade cycles.

3. Additional demand for enterprise-grade solid-state drives (SSD) due to AI and shortages of traditional hard drives (HDD).

4. Limited wafer capacity increments prioritized for HBM production.

The report points out that the shift in capacity towards HBM has directly led to a supply tightness in traditional DDR memory. UBS estimates that by the end of 2025, front-end DRAM capacity used for HBM production will account for 20% of the industry's total capacity, and this proportion will further rise to 25% by the end of 2026.

As a result of this structural shift, UBS predicts that the supply shortage of DDR memory will last at least until the fourth quarter of 2026, while the supply shortage of NAND flash memory will continue until the third quarter of 2026.

UBS Upgrades Outlook for Two Giants

In the face of an industry-wide price uptrend, UBS is optimistic about the outlook for the two major memory chip manufacturers in South Korea and has accordingly raised its financial forecasts and valuations.

For SK Hynix, UBS has raised its revenue and operating profit forecasts for 2026 by 3% and 5%, respectively; and for 2027, the forecasts have been raised by 9% and 16%. UBS reiterated that SK Hynix is its "preferred choice in the memory sector" and emphasized its leading position in the HBM market, predicting that the company will maintain a 51% market share in 2026.

For Samsung Electronics, UBS has also raised its revenue and operating profit forecasts for 2026 by 2% and 7%, respectively, based on higher DDR pricing expectations; the forecasts for 2027 have been raised by 5% and 23%. UBS's updated operating profit forecasts are 24% and 15% higher than the market consensus (Visible Alpha consensus) for 2026 and 2027, respectively, demonstrating its confidence in Samsung's profitability