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Goldman Sachs raised Kioxia's target price, as AI storage demand pushes the NAND cycle to a higher peak.
In a report dated June 30, Goldman Sachs raised its operating profit forecasts for Kioxia for FY3/27 to FY3/29 by 9%, 19%, and 29% respectively, and its EPS forecasts by 10%, 19%, and 29% respectively. The bank expects that on a calendar-year basis, NAND average selling prices will rise significantly in 2026 and continue to grow by 38% in 2027, higher than the previously expected 27%. The report noted that channel research in Japan shows major memory manufacturers are still prioritizing capital expenditure on DRAM rather than significantly expanding new NAND capacity; against the backdrop of rising AI demand, new NAND supply additions may not be released significantly until 2028.
This has brought Kioxia back into investors' view. In past cycles, the NAND market has been seen as a more easily oversupplied and cyclical storage sector due to more participants than in the DRAM and HDD industries. However, Goldman Sachs believes the profit peak of this upcycle may be higher than previously assumed by the market and could be sustained for longer. Reasons include rising demand for enterprise SSDs, replacement demand from tight HDD supply, and potential impacts of U.S. export controls on equipment supply for some Korean manufacturers' factories in China.
Kioxia's management has also recently signaled a greater focus on price and margins. Goldman Sachs said the company is not rushing to lock in shipments through long-term agreements but is instead emphasizing price discipline and gross margin levels. Since some bit shipment price negotiations for Q1 have not yet been completed as of the company's guidance release, Goldman Sachs expects Kioxia's operating profit for FY3/27 Q1, to be announced on July 31, could reach 1.417 trillion yen, higher than the company's guidance of 1.298 trillion yen and Bloomberg's consensus estimate of 1.36 trillion yen.
From an investment logic perspective, Goldman Sachs highlights two points. First, Kioxia is the world's third-largest NAND flash manufacturer with relatively strong cost competitiveness. Second, the company is gradually developing products for data centers, which are expected to become the faster-growing segment of the NAND market. As AI servers and enterprise SSDs drive demand for high-performance storage, Kioxia has the opportunity to achieve higher margins during the price upcycle.
However, Goldman Sachs also warns that the cyclical nature of the NAND industry has not disappeared. Risks include a slowdown in AI investment, the rise of Chinese NAND manufacturers, cost increases or margin declines due to capacity utilization fluctuations, a significant appreciation of the yen, and a slowdown in NAND demand from non-AI applications. In other words, Goldman Sachs does not believe the NAND market structure has permanently changed, but rather that this AI-driven supply-demand mismatch has pushed the cycle peak higher than before.