Storage stocks halved with a P/E ratio of just 2: Bank of America (BAC.US) asserts the cycle is not over

According to Woofun AI, Bank of America (BAC.US) stated in its latest research report that storage stock valuations have reached the cyclical bottom range. Although the share prices of SK Hynix and Samsung Electronics have significantly declined from their June peaks, the P/E ratios of these two giants remain only at 2 to 3 times based on 2027-28E consensus EPS estimates. Bank of America (BAC.US) emphasized that such extremely low valuations do not reflect deteriorating fundamentals but are caused by excessive market concerns about an AI storage boom-bust cycle, creating a sharp divergence between current pricing logic and supercycle-level profit forecasts.

Dissecting the valuation logic, the core contradiction arises from the disconnect between low multiples and high profitability. The report released on October 16, 2026, pointed out that storage stocks are currently in a supercycle, while market sentiment is gripped by panic over the boom and bust of AI storage. Detailed data shows that Samsung Electronics' 2027E P/E is 3.0x and 2028E is 2.8x; SK Hynix's 2027E is 2.7x and 2028E is 2.3x. These are far below the previous upcycle average of 4 to 7x, a discount of more than 30% to 50%.

Meanwhile, PB ratios are close to 1.0x 2027-28E book value per share, a level that historically coincided with over 50% drop in DRAM ASPs and significant operating losses. However, current DRAM ASPs are up 20% to 30% year-over-year, a fundamentally different pricing environment. On the profitability front, although quarter-over-quarter growth in 2027 is low and 2028 EPS is expected to decline by a single digit year-over-year, absolute sales, operating profit, and EPS still approach the 2027 peak and record highs. Data center AI storage replacement demand covers LPDDR5, SOCAMM, HBM, and eSSD, while more advanced GPUs and ASICs continue to increase storage capacity per device, supporting robust profitability.

Woofun AI's aggregated data indicates that even with a softer 2028 earnings outlook, current valuations remain low, suggesting the recent correction is disconnected from storage fundamentals.

Historical cycle comparisons and long/short divergence further reveal the correction's characteristics. SK Hynix dropped 57% from its June peak to October, surpassing the 20-year average retracement of 51% and taking only 4 months compared to the historical average of 15 months. Over the past 20+ years, Hynix has rallied 621% on average from trough to peak in about 25 months; from 2003 to 2006 it surged 1314%, and from April 2025 to June 2026 it rose 1696%, showing increasingly strong recoveries after each downturn.

Currently, 2027-28E P/E at 2 to 3 times is rarely seen except at market bottoms. At an investor conference in Singapore, hedge funds were bearish, while most long-term investors were bullish. Bearish arguments include higher borrowing costs for new cloud vendors, increased DRAM supply from China’s 4F² process, reduced storage per GPU, and potentially slower AI capex or storage price growth. Bank of America (BAC.US) responded point-by-point: China's 4F² impact is limited, AI startups and new cloud vendors have large backlogs, and even with softer ASPs after 2026, memory chipmakers can still maintain high profit margins and returns on invested capital (ROIC).

In addition, dividends plus buybacks for 2027-28 could exceed 10% of current market cap. The global total addressable market (TAM) for storage is projected to rise from nearly $1 trillion in 2026 to over $2 trillion by 2030, with operating profit potentially reaching $1 trillion and industry market cap possibly hitting $10 trillion, compared to just several trillion currently, leaving substantial upside potential.

Recent data verification and outlook show strong Q4 guidance and trade data supporting resilient demand. Nanya Technology has released optimistic Q4 guidance, and Bank of America (BAC.US) expects SK Hynix's October 28th Q4 guidance to show rising ASPs and improved profitability. Production ramp-up for 12-layer sixth-generation HBM4 is robust, with additional 8-layer output from new orders;

Despite the recent KRW 40 trillion buyback, there is still the possibility of a special cash dividend. Industry data for October remain strong: PC DRAM contract prices for DDR5 and DDR4 were up more than 15% month-over-month; spot prices held steady even as US Treasury yields rose; South Korea’s semiconductor exports totaled $12.2 billion in the first ten days of October, down 26% month-over-month but near record highs; China's August storage imports reached $37.3 billion, accounting for 57% of total imports and up 277% year-over-year. In September, China's integrated circuit imports reached $71.7 billion, up 75% year-over-year, surpassing $70 billion for the first time. Both storage imports and semiconductor exports indicate resilient demand, and Q4 guidance and price data provide fundamental support for valuation floors. Bank of America (BAC.US) concludes that the deep correction resembles a cyclical bottom, but there is no transition into a downturn. Storage stock valuations are already priced for the bottom, and whether Q4 guidance can confirm a fundamental rebound will be the key factor to watch going forward.