Storage Plummets, Overnight Shock

Author:Su Yang, Tencent Technology

Overseas storage giants are deep in the eye of the storm, with their combined market value dropping nearly $43 billion overnight on July 28.

Over the past trading day, the stock price trends of storage leaders such as SK Hynix and Micron can be described as "an overnight shock." Both SK Hynix and Samsung Electronics fell more than 13%, with a combined market value evaporating by about $28 billion. On Tuesday in the US stock market, Micron closed down 8.85%, SanDisk plummeted 14.25%, Seagate fell 8.53%, and Western Digital dropped over 6.9%, with a cumulative market value evaporation of about $14.8 billion.

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

Public data shows that SK Hynix has cumulatively retraced about 45% to 47% from its June high, with a market value evaporation of nearly $600 billion; Micron Technology has corrected more than 30% from its high; Japan's Kioxia shrank by nearly half within a month.

In sharp contrast to the plummeting stock prices, the storage giants have just delivered the most impressive performance results in history.

01 The Logic Where Earnings Cannot Support Stock Prices

On July 7, Samsung Electronics released preliminary second-quarter results, with single-quarter operating profit reaching 89.4 trillion won, soaring 18 times year-on-year, even surpassing the total profit sum of the three years from 2023 to 2025. However, this stunning financial report not only failed to boost the stock price, but instead caused Samsung to plunge more than 10% during the session, dragging the KOSPI index down by nearly 5%.

The same strange phenomenon is playing out with other giants.

SK Hynix announced its second-quarter financial report on the 29th, showing 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%, and the operating profit margin climbed to 76%.

Micron Technology's fiscal quarter revenue ending May 2026 reached $41.5 billion, a surge of 346% year-on-year, gross margin soared to 84.6%, and free cash flow was as high as $17.6 billion. Micron management even made a high-profile statement: "Demand far exceeds supply capacity, and this prosperity will continue until 2028."

Fundamentals are burning hot, yet the stock prices of storage leaders are plummeting. The first clue and possible trigger is the cross-market paired arbitrage trading spawned by SK Hynix issuing ADRs in the US stock market — "going long on US stock ADRs, going short on Korean local common stocks."

Bloomberg cited a report provided by UBS to clients, stating that many global portfolio managers who previously did not include SK Hynix stocks listed in Korea in their investment asset classes can now purchase new SK Hynix ADRs.

"Buying American Depositary Receipts from the first day of issuance and selling Korean common stocks looks like a sure-win trade," UBS wrote in the report.

Another stimulating factor is related to South Korean regulatory adjustments.

On July 16, the South Korean Financial Services Commission suddenly announced tightening regulatory rules for single-stock leveraged ETFs, not only significantly raising the minimum margin threshold from 10 million won to 30 million won, but also limiting each person to purchasing a maximum of 20 shares per transaction.

JPMorgan analyst Nikolaos Panigirtzoglou pointed out that at that time, the position size of storage chip leveraged ETFs as a proportion of the market value of related companies had reached three times that of ordinary stock ETFs. During the stock price downward phase, the mandatory closing rebalancing mechanism of leveraged ETFs triggered programmed automatic selling, instantly forming a "capital stampede."

On that day, SK Hynix fell another over 11%, Samsung plunged over 8%, and the panic wave quickly swept across Europe and America.

Looking from a longer timeline, the retracement of storage concept stocks over the past period is related to concerns about the AI investments of Silicon Valley giants and the "imbalance in investment returns" regarding related capital expenditures.

On July 22, Google released its second-quarter report and raised its full-year capital expenditure from $180–190 billion to $195–205 billion, but stock prices fell both after-hours and the next day. The core reason is that endless high capital expenditures suppress free cash flow, and there is uncertainty in AI investment returns. This is also a problem that Microsoft, Amazon, Meta, and others will face next.

Rating agency Moody's also issued a warning at the appropriate time: The nearly $1 trillion annual AI arms race is forcing giants with ample cash flow such as Google and Microsoft to over-rely on debt and off-balance-sheet financing. Currently, the direct debt of the six major cloud service providers combined has reached about $460 billion.

This means that as long as the giants' guidance falls slightly short of expectations, the market will reprice highly sensitive HBM supply chain stocks.

Shinhan Securities analyst Kang Jin-hyuk summarized this: "As investors turn their attention back to concerns about the sustainability of the AI investment cycle and the enhanced competitiveness of China's storage industry, the market's risk aversion sentiment has been completely ignited."

Superimposing the above reasons, storage concept stocks encountered "Black Tuesday" on July 28.

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

02 "The Big Short": Clearly Shorting Storage

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

Reviewing Burry's position-building trajectory: On July 2, he established a short position in Micron Technology for the first time, with an entry price of about $1,051.87; on July 25, he continued to add short positions on Micron (stock price $933.86) and NVIDIA (stock price $210.28), while simultaneously establishing a short on the SOXX Semiconductor ETF.

Burry placed heavy bets shorting storage, mainly based on three points of logic:

First, valuation seriously deviates from the moving average. As the only pure DRAM target in the US stock market, Micron has experienced 34 deep corrections with declines exceeding 30% in its past 42-year history. Currently, its stock price deviation relative to the 200-day moving average has created a highest record since 1984, even surpassing the peak of the 2000 internet bubble.

Second, capital return rates are extremely mediocre. Micron's long-term ROIC (Return on Invested Capital) median is only 4%, and ROE (Return on Equity) is only 7%. Historically, about one-third of quarters were actually in a state of "destroying capital."

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

"The Big Short" Burry shorts storage stocks

Regarding the capacity expansion plans recently announced by Korean giants, Burry even asserted: This is a "landmark node where the semiconductor prosperity cycle turns from boom to bust," and expects the entire sector will welcome a correction of at least 30%.

However, there is no lack of opposing voices in the market. Bulls believe that the quarterly report just delivered by Micron is the most beautiful in the company's history, with revenue, profit margin, and cash flow all setting records.

Tech media CoinCentral's analysis pointed out the true logic of Burry's bet: He is not betting on terminal demand collapsing immediately, but gambling on storage manufacturers' capital expenditures going out of control — Micron's own capital expenditure of up to $27 billion is planting the seeds of "plummet" for the next downward cycle.

03 Big Gamble and Cost

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

At the San Francisco AI Summit from July 24 to 25, SK Group signed a long-term agreement exceeding $500 billion with NVIDIA, locking in HBM supply and HBM4 joint development. Adding cooperation with Microsoft and Anthropic, the total scale is about $750 billion.

Samsung Electronics simultaneously signed a memorandum worth up to $200 billion with Broadcom. The combined large orders of about $950 billion from the two companies were called the largest semiconductor long-term supply lock-in in history by foreign media.

At the same time, AMD acquired MEXT attempting to use flash memory to "disguise" as DRAM to reduce memory costs, and Meta locked in multi-year NAND supply with SanDisk.

The new round of alliance by Silicon Valley giants did not have a positive pull on storage concept stocks. Compared to short-term stock price fluctuations, what really made long-term capital feel restless is a super industry plan issued by the South Korean government at the end of June — Samsung and SK Group will jointly invest 800 trillion won (about $516 billion) to build four new wafer factories in southwestern South Korea, with the goal of doubling storage chip capacity within five years.

Adding supporting HBM packaging hubs and data center construction of 550 trillion won, the overall investment scale is as high as 1350 trillion won (about $880 billion), equivalent to 5% of South Korea's 2024 GDP.

Storage manufacturers adding capacity expansion means that the "supply mode" and strict financial discipline maintained by the industry for two years have been broken.

In the past two years, storage manufacturers successfully pulled storage chip prices back to high levels precisely by relying on strict production control and tilting capacity towards high-profit HBM. Now, SK Hynix's capital expenditure in 2026 is expected to jump significantly by 43% to 40 trillion won, and Micron's capital expenditure for fiscal year 2026 has also doubled year-on-year.

Morningstar analyst Jing Jie Yu warned that as these new capacities come into production centrally in 2027 to 2028, the industry will inevitably face severe price erosion.

Analysis agency AInvest stated that manufacturers' capacity expansion is no longer a victory parade driven by AI demand, but a rerun of the script of the overcapacity plummet cycle from 2022 to 2023.

Although wafer factories usually require 18 to 24 months from construction to capacity coming online, such as Samsung's P5 factory mass production time scheduled for the second half of 2027. TrendForce also judges that before this, the pattern of DRAM supply falling short of demand is difficult to fundamentally reverse, but the stock market always trades expectations rather than the present.

It can be said that South Korea's super capacity expansion plan broke the market's illusion of "sustainable high chip unit prices." The "overnight shock" of the storage sector is essentially a disconnect between fundamentals and expectations.

Now, the sensitive capital market has already started pricing in advance for the potential supply surplus in 2027. According to "The Big Short" Burry's expectations, the time window from the second half of 2027 to 2028 when Korean new factories concentrate on mass production is the true testing ground for the storage industry.