Citi says buy the pullback in memory stocks as upcycle is still in early innings

Key Points:

• Citi strategists believe the current AI-driven memory upcycle is in its early stages and could outperform the previous major upcycle from 2001 to 2007, driven by strong demand for both DRAM and NAND memory.
• Despite recent sharp declines in memory stocks like Micron, Samsung Electronics, and SK Hynix due to valuation concerns and AI capital expenditure uncertainties, Citi highlights long-term agreements and persistent high-bandwidth memory shortages as signs of sustained growth.
• The bank expects AI chipmakers to shift from a "scale-up" to a "scale-out" approach by increasing the number of GPUs per system while reducing high-bandwidth memory per GPU, resulting in a projected 434% increase in total HBM capacity per AI system by 2027.
• SK Hynix is reportedly reviewing shareholder return options, with Citi anticipating an announcement of a shareholder return program ahead of its third-quarter earnings, supported by improved earnings visibility and long-term agreements.
• Citi maintains a Buy rating on SK Hynix, raising its 2026 and 2027 operating profit forecasts and keeping a price target of 3,100,000 won, signaling confidence in the company's prospects amid the ongoing AI memory upcycle.