Memory chips: record profits, and why investors still worry about the cycle

What happened

South Korea's two memory-chip makers reported their best quarters ever. Samsung Electronics made 107.4 trillion won of operating profit in July–September on revenue of 195.3 trillion won, the first time a Korean company has earned more than 100 trillion won in a quarter. Almost all of it came from its chip division.

SK hynix, which reported on 28 October, made 83.3 trillion won on revenue of 104.6 trillion won: an operating margin of about 80%, extraordinary for a manufacturer. Both companies are paying out tens of trillions of won to shareholders.

The driver is high-bandwidth memory (HBM), the stacked chips that sit next to AI processors. Samsung said AI demand in 2027 should "far exceed" industry supply; SK hynix's management expects demand to outpace supply through 2030.

Why memory is a boom-and-bust business

Memory chips are close to a commodity: one maker's chip can replace another's, so prices swing with the balance of supply and demand. When demand jumps, prices soar and profits explode. Every maker then builds new factories, but a factory takes two to three years to come on line. By the time the new supply arrives, demand has often cooled, and prices crash.

That is not a theory. In 2023, after the last boom, the chip businesses of Samsung and SK hynix lost about $16bn between them. Three years later, they are earning more in a single quarter than in many past years combined: KB Securities estimates their profits for 2026–27 at roughly double their previous 26 years together.

Why it matters beyond Korea

Memory is one of the biggest costs in an AI data centre, so these profits are, in part, what technology firms like Alphabet are spending. Long supply contracts with big tech now cover much of next year's output, which makes this cycle more stable than past ones. But if AI spending slowed, memory would be among the first places to feel it, and chips are a large part of South Korea's exports and growth.

Where it sits in the chain

This is Link 5, the real economy, through the investment cycle: one industry's spending is another's revenue, and capacity built in a boom shapes prices years later.

What to watch

• Both companies' investment plans for 2027: faster factory building raises the risk of a glut later.
• Big technology firms' spending plans after Alphabet's results.
• South Korea's chip exports in the monthly trade data.