This time, it's really different! Nomura: Embrace the new normal of AI, Samsung and SK Hynix should be valued with reference to TSMC

AI-driven memory demand is entering an exponential expansion phase, while supply growth cannot keep up. Nomura Securities believes that this super cycle in memory is fundamentally different from any in history — structural supply and demand imbalances, long-term agreements (LTA) locking in profit visibility, and AI self-reinforcing investment cycles are fundamentally reshaping the valuation logic of the memory industry.

On May 15, Nomura significantly raised the target prices for Samsung Electronics and SK Hynix, from 340k KRW and 2.34M KRW to 590k KRW and 4M KRW respectively, both maintaining a buy rating, with implied upside potential exceeding 118%.

Nomura believes that the current roughly 6x 12-month forward P/E ratios for these two companies severely undervalue their earnings sustainability and stability, and their risk premiums should align more with TSMC rather than continuing to hold the historically cyclical industry’s high discounts.

The core of this revaluation logic is: The explosive growth in AI inference workloads is driving a multiplicative expansion in KV cache memory demand. Nomura estimates that memory demand could grow thousands of times over the next five years, while industry supply growth is limited to about 5-6 times (annual CAGR around 30%). The structural widening of supply-demand gaps, combined with long-term supply agreements with strong binding power, means that memory manufacturers’ high profitability will have unprecedented sustainability.

AI inference explosion, memory demand enters exponential growth

Nomura points out that since the release of ChatGPT in December 2022, the memory industry has entered a structural growth phase. As AI applications shift from training to inference, and with the rapid proliferation of retrieval-augmented generation (RAG) and agentic AI, memory demand is experiencing a qualitative leap.

Nomura’s core view is: The KV cache memory demand in AI inference scenarios is a product function of multiple variables such as user scale, usage duration, task complexity, and inference token consumption. For example, a simple Q&A requires about 30 output tokens, while generating a one-hour video needs about 100 million output tokens. With the rise of agentic AI, per-user token consumption is rising exponentially.

Nomura estimates that memory demand could grow thousands of times over the next five years, while supply growth is constrained by capacity expansion cycles, expected to reach only about 5-6 times (compound annual growth rate around 30%) in the same period. This means a long-term structural supply shortage, which cannot be fundamentally reversed through software optimization or architectural adjustments.

From the perspective of data center capital expenditures, Nomura forecasts global data center capex will grow from $1.16 trillion in 2025 to $6.13 trillion in 2030, with memory accounting for an increasing share—from 9% in 2025 to 23% in 2030.

LTA Lock-in Profits, “Cyclical Stocks” Logic Disintegrating

Nomura believes that investors’ traditional concerns about the memory industry — whether long-term agreements (LTA) can truly differ from the historically failed LTA structures — are being broken by reality.

The current LTA structure is significantly different from the past: 3- to 5-year minimum contract durations, prepayment arrangements, and capital expenditure commitments greatly increase the difficulty of contract cancellations. More importantly, Nomura believes that customer demand for HBM and high-performance memory has exceeded the industry’s medium- and long-term supply capacity, meaning that the stable profit outlook for memory manufacturers is increasingly less dependent on LTAs themselves, and more supported by a structural supply shortage environment.

Based on this, Nomura expects Samsung Electronics and SK Hynix to achieve about 30% annual revenue and profit growth over the next 3 to 5 years, with profits in 2026 soaring 7- to 8-fold. This growth trajectory is highly similar to TSMC’s approximately 30% annual CAGR from 2025 to 2028, with TSMC’s current 12-month forward P/E around 20x.

Nomura explicitly states that the implied risk premium in Samsung and Hynix’s current roughly 6x forward P/E ratios (about 19% for Samsung, about 24% for Hynix) is far higher than TSMC’s approximately 6%, and this gap is no longer reasonable. As market confidence strengthens and Korea potentially joins the MSCI Developed Markets Index in June 2026, Nomura expects the discounts for both companies to gradually narrow.

Samsung: Target price sharply raised to 590k KRW, implied upside 118%

Nomura raises Samsung Electronics’ target price from 340k KRW to 590k KRW, with valuation based on a P/B multiple rising from 3.0x to 5.0x, corresponding to a 12-month forward net asset value per share of 117,669 KRW. The discount rate is lowered from 17% to 10%, still well above TSMC’s roughly 6%.

In earnings forecasts, Nomura expects Samsung’s operating profit for 2026-2028 to be 3.07 trillion, 4.32 trillion, and 5.11 trillion KRW respectively, with year-over-year growth rates of 604%, 41%, and 18%. The memory business is the core driver, with DRAM and NAND operating profit margins estimated at around 71% and 63%. HBM profitability is expected to gradually approach bulk DRAM levels by 2027.

Nomura also notes that profit improvement in Samsung’s foundry business will be constrained: over 30% of 2026 revenue will be used for bonuses, and operating costs at U.S. wafer fabs are about 50% higher than in Korea, with fixed costs remaining a pressure.

Regarding shareholder returns, Nomura expects Samsung to allocate 50% of free cash flow to shareholder returns, with free cash flow yields of 13% and 20% in 2026-2027.

Hynix: Target price raised to 4 million KRW, pure storage premium becomes evident

Nomura raises SK Hynix’s target price from 2.34 million KRW to 4 million KRW, with the target P/B multiple increasing from 3.5x to 6.0x, corresponding to a 12-month forward net asset value per share of 673,248 KRW, with an implied upside of about 120%.

Nomura forecasts Hynix’s operating profit for 2026-2028 at 2.81 trillion, 3.94 trillion, and 4.80 trillion KRW respectively, with year-over-year growth rates of 496%, 40%, and 22%. Hynix’s ROE is significantly higher than Samsung’s, expected to reach 100%, 73%, and 54% respectively, mainly due to high financial leverage and its pure storage focus.

In the HBM segment, Nomura expects Hynix’s ASP to rise from about $12.9/GB in 2026 to about $20.9/GB in 2027, with HBM operating profit margins increasing from 63% in 2026 to 72% in 2027, converging toward bulk DRAM levels.

Nomura also points out that as Hynix’s cash balance is expected to reach about 100 trillion KRW in the first half of 2026, the company may expand investor base through active shareholder returns and U.S. ADR listings.

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