Storage plunges, a night of terror

Author: Su Yang, Tencent Technology

Overseas storage giant companies are caught in the eye of a storm, and in the span of a single night on July 28, their combined market value fell by nearly $43 billion.

In the past trading day, the stock price performance of storage leaders such as SK Hynix and Micron was nothing short of a “night of terror.” Both SK Hynix and Samsung Electronics fell by more than 13%, with a combined market value loss of about $28 billion. On Wall Street on Tuesday, Micron closed down 8.85%, SanDisk plunged 14.25%, Seagate fell 8.53%, and Western Digital dropped by over 6.9%, for a total market value erosion of about $14.8 billion.

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

Public information shows that SK Hynix has cumulatively retreated about 45% to 47% from its June peak, with a market value loss of nearly $600 billion; Micron’s stock has corrected by more than 30% from its highs; and Japan’s Kioxia has shrunk by nearly half within a month.

In sharp contrast to the stock price rout is the fact that storage giants have only just turned in the brightest earnings report in history.

01 The logic that earnings can’t support the stock price

On July 7, Samsung Electronics released its preliminary second-quarter results. Its quarterly operating profit hit 89.4 trillion won, up 18 times year over year. It even surpassed the total profit from the three years of 2023 to 2025 in one move. However, far from boosting the stock price, this spectacular report instead caused Samsung to plunge more than 10% intraday, dragging the KOSPI index down by nearly 5%.

The same odd pattern also played out across other giants.

SK Hynix’s second-quarter report released on the 29th showed revenue of 79.3 trillion won, up 257% year over year. Operating profit came in at 60.5 trillion won, up 557% year over year, and the operating margin rose to 76%.

Micron Technology, for the fiscal quarter ending May 2026, reported revenue of $41.5 billion, up 346% year over year. Gross margin surged to 84.6%, and free cash flow reached $17.6 billion. Micron’s management even made a high-profile statement: “Demand is far beyond our supply capability, and this boom will continue until 2028.”

With fundamentals running hot, the stock prices of storage leaders kept sliding. The first clue—and possible trigger—was a cross-market pair-trading arbitrage transaction created by SK Hynix’s ADR issuance on the U.S. stock market— “going long U.S. ADRs and shorting SK Hynix’s local Korean shares.”

Bloomberg, citing a report provided by UBS to clients, said that many global portfolio managers who previously had not included SK Hynix shares listed in Korea in their investment asset categories can now buy the newly available SK Hynix ADRs.

“From the first day of issuance, buying U.S. depositary receipts and selling Korean ordinary shares looks like a deal that can’t lose money,” UBS wrote in the report.

Another stimulant is related to regulatory adjustments in South Korea.

On July 16, the Korea Financial Services Commission suddenly announced it would tighten regulations on single-stock leveraged ETFs. Not only did it raise the minimum margin threshold from 10 million won to 30 million won, it also capped each person at buying no more than 20 shares per transaction.

J.P. Morgan analyst Nikolaos Panigirtzoglou pointed out that at the time, the leveraged ETF positions’ share of the market value of the related companies had reached three times that of ordinary stock ETFs. In the downward phase of the stock price, the mandatory end-of-day rebalancing mechanism triggered a programmed automated sell-off, instantly creating a “stampede of capital.”

On that day, SK Hynix fell by more than 11% again, Samsung sank by more than 8%, and panic waves quickly swept through Europe and the United States.

Looking at a longer timeline, the pullback in storage concept stocks over the past period is related to concerns about “investment return imbalance” stemming from Silicon Valley giants’ AI spending and related capital expenditures.

On July 22, Google released its second-quarter report and raised full-year capital expenditures from $180–$190 billion to $195–$205 billion. However, both the after-hours and next-day stock prices closed down. The core reason was that endless high capital spending suppressed free cash flow and the return on AI investments remained uncertain. This is also the issue that Microsoft, Amazon, Meta, and others will have to face next.

Moody’s also issued a timely warning: the annual AI arms race of nearly $1 trillion is forcing cash-rich giants such as Google and Microsoft to rely excessively on debt and off-balance-sheet financing. At present, the combined direct debt of the six major cloud service providers has already reached about $460 billion.

This means that as long as the giants’ guidance misses expectations slightly, the market will reprice the highly sensitive HBM supply-chain stocks.

Newhan Securities analyst Jiang Zhenhe summarized: “As investors refocus on concerns about the sustainability of AI investment cycles, and worries that China’s storage industry competitiveness is strengthening, market risk-avoidance sentiment has been fully ignited.”

All of the above reasons stacked together, and on July 28 storage concept stocks ran into “Black Tuesday.”

Sundeep Gantori, Chief Investment Officer of Standard Chartered Bank, said that the current wave of selling reflects an overall deterioration in market sentiment toward the semiconductor sector. Some institutions even predicted in their latest research reports that storage prices will peak in 2027.

02 The “Big Short”: aggressively shorting storage, openly and clearly

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

Looking back at Burry’s build-up track: on July 2, he first established a short position in Micron Technology, entering at around $1,051.87. On July 25, he continued adding to his short bets on Micron (stock price $933.86) and Nvidia (stock price $210.28), while also establishing a short position on the SOXX semiconductor ETF.

Burry’s heavy bet on shorting storage was mainly based on three points:

First, valuation is severely deviating from moving averages. As the only pure-play DRAM target listed on U.S. markets, Micron has, over its past 42 years of history, experienced as many as 34 deep pullbacks of more than 30%. Currently, its deviation from the 200-day moving average has set the highest record 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 ROE (return on equity) is only 7%. In history, about one-third of quarters have actually been in a state of “destroying capital.”

Third, there is a risk of inflated terminal demand. Burry believes that the strong demand driven by Nvidia is not fully coming from real end-user consumption, but rather is an illusion driven by off-balance-sheet financing and capital-circulation arrangements, and he cited the Bank for International Settlements (BIS) 2026 annual report as evidence.

The “Big Short” Burry shorting storage stocks

Regarding the expansion plans announced by South Korean giants in recent times, Burry even asserted: this is a “signature turning point” indicating that the semiconductor upcycle is shifting from boom to decline, and he expects the whole sector to see at least a 30% pullback.

Still, there are also countervailing voices in the market. Bulls argue that Micron’s just-released quarterly report is the best in the company’s history, with revenue, profit margins, and cash flow all setting records.

Tech media CoinCentral’s analysis pointed out the real logic behind Burry’s bet: he is not betting that terminal demand collapses immediately, but rather betting that storage original equipment manufacturers’ capital expenditures will get out of control—Micron’s own capital spending of as much as $27 billion is planting the seeds for a “plunge” in the next down cycle.

03 Gambling big and the cost

In the weeks before the “stampede” occurred, the global storage industry was still immersed in an unprecedented “super tight-knit” rally.

At the San Francisco AI Summit on July 24 to 25, SK Group and Nvidia signed a long-term agreement worth over $500 billion, locking in HBM supply and joint development of HBM4. Combined with their cooperation with Microsoft and Anthropic, the total size is about $750 billion.

Samsung Electronics also simultaneously signed a memorandum with Broadcom worth up to $200 billion. The two deals totaling about $950 billion have been described by overseas media as the largest long-term semiconductor supply lock-in in history.

At the same time, AMD acquired MEXT in an attempt to “disguise” flash as DRAM to reduce memory costs, and Meta and SanDisk locked in NAND supply for many years.

Silicon Valley giants’ next round of teaming up failed to provide positive traction for storage concept stocks. Compared with short-term stock price fluctuations, what truly made long-term capital feel uneasy was a “super industrial plan” introduced 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 fabs in the southwestern region of South Korea, aiming to double storage chip production capacity within five years.

Adding the supporting HBM packaging hub and data center construction of 550 trillion won, the overall investment scale totals 1,350 trillion won (about $880 billion), equivalent to 5% of South Korea’s 2024 GDP.

Original equipment manufacturers increasing capacity aggressively means that the industry’s two-year “supply discipline” model and strict financial discipline have been broken.

Over the past two years, storage manufacturers successfully kept storage chip prices high precisely by tightly controlling output and shifting capacity toward high-profit HBM. Now, SK Hynix’s 2026 capital expenditures are expected to jump sharply by 43% to 40 trillion won, and Micron’s capital expenditures for fiscal 2026 are also set to double year over year.

Morningside analyst Jing Jie Yu warned that as these新增 capacity begins concentrated production in 2027 to 2028, the industry will inevitably face severe price erosion.

AInvest said that the original equipment manufacturers’ capacity expansion is no longer a victory parade driven by AI demand; it is a replay of the capacity overhang crash cycle in 2022 to 2023.

Although it typically takes 18 to 24 months for wafer fabs from construction to capacity ramp-up—Samsung’s P5 fab’s mass production schedule is set for the second half of 2027—TrendForce also judged that before that, the shortage-demand configuration for DRAM is unlikely to fundamentally reverse. But in the stock market, what is always traded is expectations, not the present.

It can be said that South Korea’s super capacity expansion plan breaks the market’s fantasy of “sustainable high chip unit prices.” The “one-night scare” in the storage sector is, in essence, a disconnect between fundamentals and expectations.

Now, the sensitive capital market has started pricing in the potential supply surplus as early as 2027. According to Burry’s “Big Short” expectations, the actual testing ground for the storage industry will be the time window when new factories in South Korea enter concentrated mass production in the second half of 2027 through 2028.