Citi Reaffirms Buy Ratings on Samsung, SK Hynix, Citing Strong AI Demand and Low Inventories

Citi analysts believe recent stock pullbacks for South Korean memory chipmakers are unjustified, reaffirming "Buy" ratings for Samsung Electronics and SK Hynix. In a research note, the bank dismissed market fears of a cyclical peak, arguing that unprecedented demand from artificial intelligence and critically low inventories will continue to support the sector.

Critically Low Inventories Signal Undersupply

Contrary to recent investor concerns about a potential downturn, Citi's analysis found that inventory levels for DRAM and NAND flash memory are "materially low" across the entire ecosystem, including at both suppliers and their customers.

The report highlights a significant supply-demand imbalance, with sufficiency ratios for major manufacturers plummeting from 70% to 50%. According to Citi, this indicates that production capacity is failing to keep pace with global orders, which will likely result in a "persistent undersupply."

AI Workloads Drive Next Wave of Demand

While sluggish demand for consumer electronics in China has weighed on sentiment, Citi expects new enterprise AI applications to more than absorb available supply and drive prices higher. The bank identified several key growth drivers:

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• Context Memory Extension (CMX): The adoption of autonomous AI agents is increasing demand for CMX architectures and the Key-Value (KV) cache they require.
• Near-GPU Storage: Quad-Level Cell (QLC) solid-state drives (SSDs) are being increasingly used to eliminate data bottlenecks for high-performance computing.
• Advanced Hardware: New systems like Nvidia’s Vera Rubin architecture, which can require over 1,152 terabytes of high-speed SSD storage per server, exemplify the scale of future demand.

Citi estimates that CMX-related NAND demand alone will grow to account for 2.8% and eventually 9.3% of total global NAND demand.

Analyst Outlook

Citi maintained its "Buy" rating on Samsung Electronics, noting its strong position in both high-density NAND and advanced DRAM for server deployments. The bank also reiterated its "Buy" on SK Hynix, identifying it as a primary beneficiary of the tight hyperscaler supply chain due to its role as a key high-bandwidth memory (HBM) supplier for leading GPU manufacturers.