Investing.com — The current AI-driven memory upcycle remains in its early stages, Citi strategists say, arguing it could ultimately outperform the industry’s last major upcycle between 2001 and 2007.
The present cycle resembles that seven-year NAND upcycle, when new applications such as MP3 players and digital cameras drove demand and NAND increasingly displaced cassette tapes and analog camera film.
Memory stocks have recently fallen sharply after a blistering rally, with Micron (), Samsung Electronics Co Ltd () and SK Hynix () all down more than 20% from recent highs amid concerns over stretched valuations and AI capex spending.
But Citi strategists believe the current cycle “is likely to outperform the ’01–’07 upcycle given that AI demand is driving both DRAM and NAND demand.” They also pointed to customers signing three- to five-year long-term agreement (LTA) contracts as evidence the upcycle is persisting longer than initially expected.
Moreover, Citi highlighted a persistent shortage in high-bandwidth memory (HBM) chips, which it expects will push AI chipmakers to pivot from a “scale-up” to a “scale-out” approach, deploying a greater number of GPUs with lower HBM content per unit rather than concentrating capacity in fewer, more powerful chips.
Despite this decline in HBM content per GPU, the bank projects total HBM capacity per AI system will still surge 434%, from 20.7 terabytes to 110.6 terabytes, as GPU counts per system expand from 72 to 576.
The strategists further noted that SK Hynix indicated during its second-quarter earnings call that it was reviewing shareholder return options. Given the recent pullback in the stock, they expect Hynix to announce a shareholder return program ahead of its third-quarter earnings release.
“As the mid-to-long-term earnings visibility becomes clear, supported by the ongoing AI memory upcycle and the substantial advance payments secured through LTA agreement, we anticipate Hynix to share constructive market outlook as well as decent shareholder returns,” the team wrote.
Citi reiterated its Buy rating on SK Hynix, raised its 2026 and 2027 operating profit estimates by 4% and 3%, respectively, and maintained its price target of 3,100,000 won.