SK Hynix and Samsung Electronics have fallen more than 50% from their June peaks, with price-to-earnings ratios of just 2 to 3 times based on consensus earnings per share for 2027 to 2028. In its October 16, 2026 report, Bank of America placed this valuation within the cyclical trough range while maintaining super-cycle-level earnings forecasts. The report concludes that this round of correction in memory stocks is disconnected from fundamentals, reflecting excessive concern over an AI storage boom-bust cycle.

Bank of America's framework consists of two layers. On the valuation layer, the 2 to 3 times P/E is lower than the 4 to 7 times seen in previous up-cycle phases, and the price-to-book ratio approaches 1.0 times the 2027-28E book value per share. On the earnings layer, while 2028 EPS shows single-digit year-over-year declines, absolute sales, operating profit, and EPS remain close to 2027 peaks and record highs. Combined, the valuation prices in cyclical troughs, while earnings do not confirm downside risk.

Data center AI storage replacement demand covers low-power double data rate 5 memory (LPDDR5), small-outline compact attached memory modules (SOCAMM), high bandwidth memory (HBM), and enterprise solid-state drives (eSSD). More advanced graphics processing units (GPUs) and application-specific integrated circuits (ASICs) continue to drive up single-machine storage content.

Valuation Falls into Cyclical Trough Range

Samsung Electronics trades at a 3.0x 2027E and 2.8x 2028E P/E; SK Hynix at 2.7x 2027E and 2.3x 2028E. Based on consensus EPS for 2027 to 2028, both trade in the 2 to 3 times range. During previous up-cycle phases, the P/Es for these two companies ranged from 4 to 7 times. Current multiples are down 30% to over 50%.

The price-to-book ratio is approaching 1.0 times the 2027-28E book value per share. Historically, such levels often appeared at cyclical troughs, accompanied by high chip inventories, dynamic random access memory (DRAM) average selling prices dropping over 50%, large operating losses, and high borrowing costs. Current DRAM ASPs are up 20% to 30% year-over-year, lacking the price conditions typical of historical bottoms.

Bank of America acknowledges that 2028 earnings will be softer, with low quarterly sequential growth in 2027 and single-digit year-over-year declines in 2028 EPS. However, 2028 sales, operating profit, and EPS will still approach 2027 peaks and record highs. Valuations remain low even when using the softer 2028 earnings baseline. The report argues that recent memory stock corrections are disconnected from core memory fundamentals.

Hynix's Pullback Exceeds 20-Year Average

SK Hynix fell 57% from its June peak to October, exceeding the roughly 51% average pullback magnitude over the past two-plus decades. Historical average pullbacks lasted 15 months, whereas this one took only 4 months. Deeper decline, shorter duration.

Over the past 20+ years, Hynix has averaged a 621% gain from trough to peak over ~25 months, followed by an average 51% drawdown over ~15 months. It rose 1314% from the 2003 trough to the 2006 peak, and 1696% from April 2025 to June 2026. Recovery strength has increased after each major downturn.

Current 2027-28E P/Es of 2 to 3 times rarely occur outside of cyclical troughs. DRAM ASPs are currently up 20% to 30% year-over-year, whereas historical cyclical troughs typically saw declines of 10% to 30%. Hynix entered this correction amid AI infrastructure and HBM demand, leaving long-term earnings drivers intact. The risk-reward profile resembles historical bottom formation rather than the start of a structural downtrend.

Investor Feedback Shows Long-Short Divergence

This week in Singapore, Bank of America met with investors; hedge funds are bearish while most long-only investors remain bullish. Bearish arguments include high borrowing costs for neocloud providers, increased Chinese 4F²-process DRAM supply, declining storage content per GPU, potential slowdown in AI capex or memory price growth, and earnings potentially missing bull-side consensus. Divergence between bulls and bears centers on cycle length, though directional assessments are aligned.

Bank of America addresses each point. Valuation multiples remain too low even with softer 2028 earnings; Chinese 4F² impact is limited; AI startups and neocloud providers hold substantial backlog orders; memory manufacturers maintain high margins and return on invested capital (ROIC) even under a softer post-2026 ASP assumption; and shareholder returns are robust, with 2027-28 dividends plus buybacks potentially exceeding 10% of current market cap.

The global total addressable market (TAM) for storage is projected to grow from nearly $1.0 trillion in 2026 to over $2.0 trillion by 2030, with operating profits potentially reaching $1.0 trillion, industry market cap possibly hitting $10 trillion, compared to a few trillion dollars currently.

Q4 Guidance and Pricing Remain Strong

Nanya Technology has already issued a bullish Q4 outlook. Bank of America expects SK Hynix's October 28 Q4 guidance to show upward trends in ASPs and margins. Production of 12-layer sixth-generation HBM (HBM4) is ramping strongly, with new orders adding another 8-layer variant; despite the recent KRW 40 trillion buyback, it may still declare special cash dividends.

October industry data is not weak. PC DRAM contract prices for DDR5 and DDR4 monthly increased by over 15%; spot prices remained stable despite rising U.S. Treasury yields; South Korean semiconductor exports reached $12.2 billion in the first 10 days of October, down 26% sequentially but near record highs; China imported $37.3 billion in memory chips in August, accounting for 57% of total imports, up 277% year-over-year.

China's IC imports hit $71.7 billion in September, up 75% year-over-year, surpassing the $70 billion mark for the first time. Both memory import and semiconductor export figures point to resilient demand, showing no signs of collapse. Q4 guidance and pricing data provide fundamental support for the valuation floor. Bank of America concludes that the deep correction resembles a cyclical bottom, without transitioning into a downtrend.

With memory stock valuations already priced for cyclical bottoms, whether Q4 guidance can confirm a fundamental recovery and pull the trend back up is the key variable to watch next.

Disclaimer

This article is compiled and interpreted by Chaoxiang Research based on third-party broker research reports (Bank of America, October 16, 2026), combined with public market information. The ratings, target prices, earnings forecasts, and related judgments cited herein are solely those of the respective broker's analysts, representing only their institution's stance, not those of Chaoxiang Research, and do not constitute any investment advice.

Markets involve risks, and decisions must be made independently. This article should not serve as the basis for buying or selling any securities.

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