SK Hynix CEO warns of the most severe memory shortage next year—what is the basis for this claim, and how extensive could its impact be?

Let me share an insider perspective: across the memory industry—regardless of company size—all original memory manufacturers consistently voice tight supply conditions during industry exchanges. Even in 2023, when memory prices plummeted to dismal levels, they still refrained from proactively announcing price declines for the next quarter. A memory shortage next year stems from the current upward trend in DRAM prices, which has triggered widespread over-booking across the board. Buyers are rushing to secure inventory early—'buying on rising prices, not falling ones'—to hedge against anticipated price hikes next year. At a minimum, both SK Hynix and Samsung report receiving customer demand forecasts that exceed customers’ actual requirements. From a senior executive’s vantage point, subordinates naturally relay these inflated demand figures—not the underlying true demand—making the industry appear robust and thriving. Some may cite long-term supply agreements (LTAs) as evidence to the contrary, arguing that customers have already locked in supply with memory makers. Here’s a counterpoint: LTAs are reciprocal commitments. Memory manufacturers face penalties if they fail to meet LTA obligations; thus, their production and supply capacity must at least satisfy—and likely exceed—the needs of LTA customers.

The higher the expectations, the greater the disappointment! U.S. companies missing earnings expectations face harsher market 'punishment' than before.

Peter Boockvar, Chief Investment Officer at Bleakley Financial Group, stated in a media interview: "The strong performance of some stocks this year has set an exceptionally high bar for the upcoming earnings season. Even if these companies surpass consensus earnings-per-share (EPS) estimates, markets have already priced in those expectations. For many top-performing stocks this year, valuation is undoubtedly a major challenge." Top performers outpace the broader market more than ever before Savita Subramanian, strategist at Bank of America, and her team observed that, relative to the U.S. equity benchmark index, top-performing individual stocks have outperformed the broader market to a greater degree than in prior years. Among S&P 500 constituents, stocks reporting both sales and EPS above Wall Street expectations rose 2.4 percentage points more than the S&P 500 index the day after earnings release—the highest such outperformance since Q4 2018, versus a historical average of 1.5 percentage points. Meanwhile, Bank of America found that the market penalty for underperformance has slightly eased: S&P 500 stocks missing earnings expectations underperformed the index by 2.2 percentage points—slightly less severe than the historical average underperformance of 2.4 percentage points. Subramanian wrote in her report: "This may suggest that, as themes beyond artificial intelligence gain traction, recent market reactions are becoming more diversified in their drivers." Investors shift capital from large caps to small caps and cyclical stocks This week, over one-third of companies spanning all 11 sectors of the S&P 500 Index will release financial results. To date, more than 200 firms have reported. Bank of America’s analysis shows these companies, on aggregate, delivered earnings 3% above consensus expectations. Although the number of firms beating both EPS and revenue estimates declined slightly from last quarter, the number citing weak demand has fallen, and forward guidance has improved—to its strongest level since August 2023. Yet not all positive earnings surprises trigger favorable market reactions. For example, Ford Motor Company’s stock plunged over 18% in a single day after its earnings missed forecasts due to unexpectedly high warranty costs. Similarly, diabetes management company Dexcom saw its share price collapse 40% following disappointing revenue and pessimistic forward guidance.