Is the Memory Supercycle Peak Near for Micron and SK Hynix?

Memory prices have surged over the past year, driving up stocks for DRAM (dynamic random access memory) manufacturers Micron Technology and SK Hynix. However, this boom is part of a cyclical memory market where prices rise, customers over-order, capacity expands, and prices eventually fall. The current cycle is unique as it's driven by the AI arms race, where tech giants continuously increase compute capacity to stay competitive.

This demand for GPUs and AI chips is directly linked to high bandwidth memory (HBM), a type of DRAM that reduces latency and optimizes performance. The three major DRAM makers - including Samsung Electronics - are all focused on increasing HBM capacity, keeping the market undersupplied. However, challenges include the limited availability of extreme ultraviolet lithography (EUV) machines, which are needed for HBM and advanced logic chips manufacturing.

Additionally, HBM requires significantly more wafer capacity than regular DRAM. Long-term contracts with AI companies, such as SK Hynix's $750 billion deal with Nvidia, and Micron's deals with 16 customers through 2030, indicate a shift in demand. While the memory cycle may extend beyond most analysts' expectations, SK Hynix appears to be the better long-term investment due to its HBM leadership and partnership with Nvidia.