Storage plummets, a night of shock

Author｜Su Yang, Tencent Technology

Overseas storage giants are caught in the eye of the storm, with a combined market value drop of nearly $43 billion overnight on July 28.

In the past trading day, the stock price movements of storage leaders like SK Hynix and Micron can be described as a "night of terror." Both SK Hynix and Samsung Electronics saw declines of over 13%, resulting in a combined market value evaporation of about $28 billion. On Tuesday, Micron fell 8.85%, SanDisk plummeted 14.25%, Seagate dropped 8.53%, and Western Digital fell over 6.9%, with a cumulative market value loss of about $14.8 billion.

On Tuesday, screens in the trading room of Hana Bank in Seoul displayed the closing prices of the benchmark KOSPI index as well as Samsung Electronics and SK Hynix stocks.

Public data shows that SK Hynix has retraced about 45% to 47% from its June peak, with a market value loss of nearly $600 billion; Micron Technology has seen a more than 30% pullback from its highs; and Japan's Kioxia has shrunk by nearly half in a month.

In stark contrast to the plummeting stock prices, the storage giants have just delivered their most impressive performance report ever.

01 The Logic Behind Performance Not Supporting Stock Prices

On July 7, Samsung Electronics released preliminary results for the second quarter, reporting an operating profit of 89.4 trillion won for the quarter, soaring 18 times year-on-year, even surpassing the total profit for the years 2023 to 2025. However, this stunning financial report not only failed to boost the stock price but instead caused Samsung's shares to plunge over 10% during the day, dragging the KOSPI index down nearly 5%.

The same strange phenomenon is also seen with other giants.

On July 29, SK Hynix announced its second-quarter financial report, showing revenue of 79.3 trillion won, a year-on-year increase of 257%; operating profit of 60.5 trillion won, a year-on-year increase of 557%, with an operating profit margin rising to 76%.

For the fiscal quarter ending May 2026, Micron Technology reported revenue of $41.5 billion, a year-on-year surge of 346%, with a gross margin soaring to 84.6% and free cash flow reaching $17.6 billion. Micron's management even boldly stated, "Demand far exceeds supply capacity, and this situation will continue until 2028."

While the fundamentals are heating up, the stock prices of the storage leaders are plummeting. The first clue and possible trigger is the cross-market arbitrage trading generated by SK Hynix issuing ADRs in the U.S. — "going long on U.S. ADRs and shorting the Korean local stocks."

Bloomberg cited a report from UBS provided to clients, stating that many global portfolio managers who had previously not included SK Hynix stocks listed in Korea in their investment asset categories can now purchase the new SK Hynix ADRs.

"Buying U.S. depositary receipts from day one and selling Korean common stocks seems like a risk-free trade," UBS wrote in the report.

Another stimulating factor is related to regulatory adjustments in Korea.

On July 16, the Financial Services Commission of Korea suddenly announced tightened regulations on single-stock leveraged ETFs, significantly raising the minimum margin requirement from 10 million won to 30 million won, and limiting each person to a maximum purchase of 20 shares at a time.

J.P. Morgan analyst Nikolaos Panigirtzoglou pointed out that at that time, the holdings of leveraged ETFs for memory chips accounted for three times the market value of the related companies compared to ordinary stock ETFs. During a price decline, the mandatory rebalancing mechanism of leveraged ETFs triggered programmatic automatic selling, instantly creating a "funding stampede."

On that day, SK Hynix fell over 11%, Samsung dropped over 8%, and panic waves quickly swept through Europe and the U.S.

Looking at a longer timeline, the recent pullback of storage concept stocks is related to concerns about the "investment return imbalance" from the AI investments and related capital expenditures of Silicon Valley giants.

On July 22, Google released its second-quarter report and raised its full-year capital expenditure forecast from $180 billion to $190 billion to $195 billion to $205 billion, but its stock price fell after hours and the next day, primarily due to the relentless high capital expenditures suppressing free cash flow, with uncertainties in AI investment returns. This is also a problem that Microsoft, Amazon, and Meta will face together.

Rating agency Moody's also issued a timely warning: the nearly $1 trillion annual AI arms race is forcing cash-rich giants like Google and Microsoft to overly rely on debt and off-balance-sheet financing, with the total direct debt of the six major cloud service providers reaching about $460 billion.

This means that as long as the guidance from the giants slightly misses expectations, the market will reprice the highly sensitive HBM supply chain stocks.

Analyst Jiang Zhenhe from Shinhan Securities summarized, "As investors shift their attention back to the sustainability of the AI investment cycle and concerns about the competitiveness of the Chinese storage industry increase, market risk aversion sentiment has been completely ignited."

All these reasons combined led to the "Black Tuesday" for storage concept stocks on July 28.

Sundeep Gantori, Chief Investment Officer of Standard Chartered Bank, stated that the current wave of selling reflects the overall deterioration of market sentiment towards the semiconductor sector, with some institutions even predicting in their latest research reports that storage prices will peak in 2027.

02 "The Big Short": Clearly Shorting Storage

At the most panicked moment in market sentiment, Michael Burry, the prototype of "The Big Short," publicly disclosed through his personal column that he is heavily shorting the storage chip sector and is continuing to increase his position.

Looking back at Burry's position-building trajectory: on July 2, he first established a short position in Micron Technology at an entry price of about $105.18; on July 25, he continued to increase his short positions in Micron (stock price $93.39) and Nvidia (stock price $210.28), while also establishing a short position in the SOXX semiconductor ETF.

Burry's heavy bet against storage is primarily based on three points:

First, valuations are severely deviated from the mean. As the only pure DRAM stock in the U.S. market, Micron has experienced 34 instances of declines exceeding 30% in its 42-year history. Currently, its stock price deviation from the 200-day moving average has reached the highest level since 1984, even surpassing the peak of the 2000 internet bubble.

Second, capital returns are extremely mediocre. Micron's long-term median ROIC (Return on Invested Capital) is only 4%, and ROE (Return on Equity) is only 7%, with about one-third of the quarters historically being in a "capital destruction" state.

Third, there is a risk of inflated end-user demand. Burry firmly believes that the strong demand triggered by Nvidia does not entirely come from genuine end-user consumption but is driven by off-balance-sheet financing and capital cycle arrangements, citing the Bank for International Settlements (BIS) 2026 annual report as evidence.

"The Big Short" Burry shorts storage stocks

Regarding the recent expansion plans announced by Korean giants, Burry asserted: this is a "significant turning point" in the semiconductor cycle from boom to bust, predicting that the entire sector will face at least a 30% correction.

However, there are also dissenting voices in the market. Bulls argue that the quarterly report just released by Micron is the most impressive in the company's history, with revenue, profit margins, and cash flow all hitting records.

Analysis from tech media CoinCentral pointed out the true logic behind Burry's bet: he is not betting on an immediate collapse of end-user demand but is wagering that the capital expenditures of storage manufacturers are out of control — Micron's own capital expenditure of $27 billion is sowing the seeds for a "crash" in the next downturn.

03 High Stakes and Costs

Just weeks before the "stampede" occurred, the global storage industry was still immersed in an unprecedented "super alliance."

At the AI summit in San Francisco on July 24-25, SK Group signed a long-term agreement worth over $500 billion with Nvidia to secure HBM supply and jointly develop HBM4, along with collaborations with Microsoft and Anthropic, bringing the total scale to about $750 billion.

Samsung Electronics simultaneously signed a memorandum of understanding with Broadcom worth up to $200 billion. The combined total of about $950 billion in large orders has been referred to by foreign media as the largest long-term semiconductor supply lock-in in history.

At the same time, AMD's acquisition of MEXT attempts to use flash memory to "disguise" DRAM to reduce memory costs, while Meta and SanDisk locked in years of NAND supply.

The new round of alliances among Silicon Valley giants has not positively influenced storage concept stocks. Compared to short-term stock price fluctuations, what truly makes long-term investors uneasy is a super industrial plan introduced by the Korean government at the end of June — Samsung and SK Group will jointly invest 800 trillion won (approximately $516 billion) to build four new wafer fabs in the southwest of Korea, aiming to double storage chip production capacity within five years.

Along with a supporting 550 trillion won HBM packaging hub and data center construction, the overall investment scale reaches 1,350 trillion won (approximately $880 billion), equivalent to 5% of Korea's GDP in 2024.

The expansion of storage manufacturers means that the "supply model" and strict financial discipline that the industry has maintained for two years have been broken.

Over the past two years, storage manufacturers have successfully pulled storage chip prices back to high levels by strictly controlling production and shifting capacity toward high-profit HBM. Now, SK Hynix's capital expenditure for 2026 is expected to jump significantly by 43% to 40 trillion won, and Micron's capital expenditure for the 2026 fiscal year is also expected to double year-on-year.

Morningstar analyst Jing Jie Yu warned that as these new production capacities come online between 2027 and 2028, the industry will inevitably face severe price erosion.

Analysis firm AInvest stated that the expansion of manufacturers is no longer a victory parade driven by AI demand but a replay of the oversupply crash cycle of 2022 to 2023.

Although it typically takes 18 to 24 months for a wafer fab to be built and for production capacity to come online, with Samsung's P5 factory's mass production scheduled for the second half of 2027, TrendForce also judges that before then, the supply-demand imbalance for DRAM is unlikely to fundamentally change, but the stock market always trades on expectations rather than the present.

It can be said that Korea's super expansion plan has shattered the market's illusion of "sustainable high chip prices." The "night of terror" in the storage sector is essentially a disconnection between fundamentals and expectations.

Now, the sensitive capital market has begun to price in the potential oversupply in 2027 in advance. According to "The Big Short" Burry's expectations, the time window for the concentrated mass production of new factories in Korea in the second half of 2027 to 2028 is the real examination for the storage industry.