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 in one night on July 28.
In the past trading day, the stock price trends of storage leaders like SK Hynix and Micron can be described as a "night of terror." SK Hynix and Samsung Electronics both saw declines of over 13%, resulting in a combined market value evaporation of about $28 billion. On the US stock market, on Tuesday, Micron fell 8.85%, SanDisk plummeted 14.25%, Seagate dropped 8.53%, and Western Digital fell over 6.9%, leading to a total market value loss of about $14.8 billion.
On Tuesday, the 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 information shows that SK Hynix has declined by about 45% to 47% from its June peak, with a market value evaporation of nearly $600 billion; Micron Technology has seen a high-level adjustment of over 30%; and Japan's Kioxia has shrunk by nearly half within a month.
In sharp contrast to the steep stock price declines, the storage giants had just released their most impressive performance report ever.
01 Profits Unsustainable for Stock Prices
On July 7, Samsung Electronics announced preliminary results for the second quarter, with an operating profit of 89.4 trillion won, soaring 18 times year-on-year, even surpassing the combined profits of three years from 2023 to 2025. However, this stunning financial report not only failed to boost the stock price but instead led to a plunge of over 10% during the trading day, dragging the KOSPI index down by nearly 5%.
The same bizarre phenomenon unfolded in other giants as well.
SK Hynix's second-quarter financial report published on the 29th showed that revenue reached 79.3 trillion won, a year-on-year increase of 257%; operating profit was 60.5 trillion won, a year-on-year increase of 557%, with an operating profit margin rising to 76%.
Micron Technology reported that revenue for the fiscal quarter ending May 2026 reached $41.5 billion, a year-on-year surge of 346%, with a gross margin soaring to 84.6% and free cash flow hitting $17.6 billion. Micron's management even boldly stated, "Demand far exceeds supply capacity, and this situation will last until 2028."
The fundamentals were scorching hot, yet the stock prices of the leading storage companies plummeted. The first clue and possible trigger was the cross-market pair arbitrage trading that arose from SK Hynix's issuance of ADRs in the US stocks - "Going long on US ADRs, going short on Korean local stocks."
Bloomberg quoted a report from UBS to clients, stating that many global portfolio managers who had not previously included SK Hynix's shares listed in Korea in their investment asset categories can now purchase new SK Hynix ADRs.
"Buying American depositary receipts from day one and selling Korean common stocks seems like a risk-free trade," UBS wrote in the report.
Another stimulating factor related to regulatory adjustments in South Korea.
On July 16, the South Korean Financial Services Commission suddenly announced tightened regulatory rules for single-stock leveraged ETFs, raising the minimum margin requirement from 10 million won to 30 million won and limiting purchases to a maximum of 20 shares per person per transaction.
J.P. Morgan analyst Nikolaos Panigirtzoglou pointed out that the holding size of leveraged ETFs related to storage chips was already three times that of traditional stock ETFs in terms of market cap. During the stock price downturn, the mandatory closing rebalancing mechanism of leveraged ETFs triggered programmatic automatic sell-offs, instantly creating a "liquidity crisis."
On that day, SK Hynix fell over 11%, Samsung dropped more than 8%, and panic waves quickly swept through Europe and the US.
Looking at a longer timeline, the recent declines in storage concept stocks are related to concerns over the imbalance of "investment returns" driven by AI investments and capital expenditures by Silicon Valley giants.
On July 22, Google released its second-quarter report and raised its annual capital expenditure estimate from $180–190 billion to $195–205 billion, but its stock price closed down after hours and the next day, mainly due to the relentless high capital expenditures squeezing free cash flow, with uncertainties in AI investment returns. This is also a problem that Microsoft, Amazon, and Meta will face in the future.
Rating agency Moody's timely issued a 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 combined direct debt of the six major cloud service providers reaching around $460 billion.
This means that as long as the guidance from the giants falls slightly short of expectations, the market will reprice sensitive HBM supply chain stocks.
Analyst Jiang Zhenhe from Shinhan Securities summarized: "As investors shift their focus back to the sustainability of the AI investment cycle and concerns about the enhanced competitiveness of China's storage industry, market risk aversion has been ignited."
All these reasons combined led to the "Black Tuesday" faced by storage concept stocks on July 28.
Sundeep Gantori, Chief Investment Officer of Standard Chartered Bank, stated that the current wave of sell-offs reflects an overall deterioration of sentiment towards the semiconductor sector, with some institutions even predicting in their latest research reports that storage prices will peak in 2027.
02 "Big Short": Clearly Shorting Storage
At the most anxious moment of market sentiment, "The Big Short" prototype Michael Burry publicly revealed through his personal column that he is heavily shorting the storage chip sector and continues to increase his position.
Looking back at Burry's building process: on July 2, he established a short position in Micron Technology for the first time, with an entry price of about $105.18; on July 25, he continued to add to his shorts 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 seriously deviating from the mean. Micron, as the only pure DRAM stock in US markets, has historically experienced over 30% deep pullbacks 34 times in its 42-year history. Currently, its stock price deviation from the 200-day moving average is at its 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 the ROE (Return on Equity) is merely 7%, with about one-third of quarters historically being in a "capital-destructive" state.
Third, terminal demand faces the risk of being overstated. Burry believes that the strong demand driven by NVIDIA does not come entirely from genuine end-user consumption but is instead a façade driven by off-balance-sheet financing and capital circular arrangements, citing the Bank for International Settlements (BIS) annual report of 2026 as evidence.
"Big Short" Burry shorts storage stocks
Regarding the recent expansion plans announced by Korean giants, Burry flatly asserted: this marks a "turning point" in the semiconductor boom cycle, expecting an overall correction of at least 30% in the sector.
However, there are also dissenting voices in the market. Bulls believe that the quarterly report just released by Micron is the best in the company's history, with revenue, margin, and cash flow all reaching record highs.
Analysis from the tech media CoinCentral pointed out the true logic behind Burry's bet: he is not betting on an immediate collapse in terminal demand but rather on the uncontrolled capital expenditures of memory manufacturers - Micron's own capital spending of a staggering $27 billion is sowing the "seeds" for the next downward cycle.
03 High Stakes and Costs
In the weeks leading up to the "crash," the global storage industry was still immersed in an unprecedented "super alliance."
At the AI summit in San Francisco from July 24 to 25, SK Group signed a long-term agreement worth over $500 billion with NVIDIA to secure HBM supplies and co-develop HBM4. Along with collaborations with Microsoft and Anthropic, the total scale is approximately $750 billion.
Simultaneously, Samsung Electronics signed a memorandum with Broadcom worth up to $200 billion. The combined total of approximately $950 billion in large orders has been dubbed the largest long-term semiconductor supply agreement in history by foreign media.
At the same time, AMD's acquisition of MEXT attempts to disguise flash memory as DRAM to reduce memory costs, while Meta locked in NAND supplies for years with SanDisk.
The latest round of alliances among Silicon Valley giants did not exert a positive pull on storage concept stocks. What truly makes long-term capital uneasy is the super industrial plan announced 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 southwestern South Korea, aiming to double storage chip production capacity within five years.
Including a supporting package of 550 trillion won for HBM packaging hubs and data center construction, the overall investment scale reaches 1350 trillion won (approximately $880 billion), equivalent to 5% of South Korea’s GDP in 2024.
The expansion of storage manufacturers implies that the "supply model" and strict financial discipline maintained in the industry for two years has been broken.
Over the past two years, storage manufacturers have relied on strict production control and tilted capacity towards high-profit HBM to successfully push storage chip prices back to high levels. Now, SK Hynix's capital expenditure for 2026 is expected to increase significantly by 43% to 40 trillion won, with Micron's capital expenditure for the fiscal year 2026 also doubling year-on-year.
Morningstar analyst Jing Jie Yu warned that with the added capacity coming on stream between 2027 and 2028, the industry will inevitably face sharp price erosion.
Analyst agency AInvest stated that the original factory expansion is no longer a victory parade driven by AI demand but rather a replay of the oversupply collapse cycle of 2022-2023.
Although it typically takes 18 to 24 months for a fab to go from construction to production capacity realization, with Samsung's P5 factory's mass production time scheduled for the second half of 2027, TrendForce also judges that before that, the imbalance of supply and demand for DRAM is unlikely to fundamentally change. However, the stock market always trades on expectations rather than current situations.
It can be said that South Korea's super expansion plan has shattered the market's fantasy of "sustainable high chip prices." The "night of terror" in the storage sector is essentially a disconnect between fundamentals and expectations.
Now, the sensitive capital market has begun to price in the potential oversupply for 2027 in advance. According to "Big Short" Burry's expectations, the time window for the new factories in South Korea to concentrate on mass production in the second half of 2027 to 2028 is the real examination for the storage industry.
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