Citi remains constructive on the memory semiconductor sector, arguing that the recent correction in leading chipmakers has created an attractive entry point for investors. The bank believes the current AI-driven memory expansion is still in its early stages and has the potential to outperform the industry’s last major growth cycle.
Market Pullback Has Not Changed the Long-Term Story
After a powerful rally, shares of Micron (NASDAQ:MU), Samsung Electronics Co Ltd (USOTC:SSNHZ) and SK Hynix (NASDAQ:SKHY) have all retreated more than 20% from recent peaks as investors questioned valuations and the durability of AI infrastructure spending.
However, Citi argues that the sector’s long-term fundamentals remain compelling.
The bank said the current cycle “is likely to outperform the ’01–’07 upcycle given that AI demand is driving both DRAM and NAND demand.”
Multi-Year Agreements Support Earnings Visibility
Unlike previous cycles, customers are increasingly securing supply through long-term agreements lasting between three and five years.
Citi believes these contracts demonstrate confidence that demand will remain elevated well beyond the near term while providing greater earnings certainty for memory manufacturers.
HBM Demand Continues to Expand
Although shortages of high-bandwidth memory are encouraging AI companies to redesign system architectures using more GPUs with less HBM per chip, Citi believes total HBM demand will continue to accelerate.
The bank forecasts HBM capacity per AI system will increase from 20.7 terabytes to 110.6 terabytes, representing growth of 434%, as GPU counts expand from 72 to 576 per system.
SK Hynix Remains Citi’s Preferred Pick
Citi expects SK Hynix to announce additional shareholder returns following recent comments from management that capital allocation options are under review.
“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 analysts said.
The bank maintained its Buy recommendation on SK Hynix, increased its operating profit forecasts for both 2026 and 2027, and reiterated its target price of 3,100,000 won.
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