AI demand breaks semiconductor's boom-bust cycle
The semiconductor industry's traditional four-year cycle-build capacity when demand rises, watch prices collapse when supply floods the market-is breaking down. AI infrastructure investment is reshaping the supply-demand structure in ways that older models don't explain.
Contract prices for general-purpose DRAM are forecast to jump 90 to 95 percent in the first quarter. Customers are buying anyway, even as prices climb. In the fourth quarter of last year, total DRAM industry revenue rose 29.4 percent to $53.58 billion, with contract prices for general-purpose DRAM up 45 to 50 percent and blended prices combining general-purpose DRAM and high bandwidth memory (HBM) up 50 to 55 percent.
The shift stems from a fundamental change in what drives memory demand. Historically, PC and smartphone replacement cycles set the pace. Now, cloud service providers are investing heavily in data centre infrastructure for both AI training and inference workloads, independent of consumer device cycles.
Supply can't keep pace
The demand-supply gap has widened to more than 100 percentage points-the largest on record, according to Daishin Securities. The memory semiconductor market is forecast to grow 157 percent this year to $563.2 billion.
Even with new factories under construction, production won't ramp up until after the first half of 2027. Cleanroom capacity is a direct bottleneck. HBM3E and HBM4 chips are also consuming leading-edge manufacturing capacity that would otherwise go to general-purpose DRAM.
Process technology transitions add another constraint. As two-dimensional miniaturization reaches its limits, manufacturers face uncertainty around next-generation techniques. This reduces the likelihood of the oversupply that typically triggers price collapses in past cycles.
Korean manufacturers benefit most
Samsung Electronics and SK hynix are positioned to capture most of the gains. Samsung's fourth-quarter DRAM revenue rose 43 percent to $19.3 billion, reclaiming the top market position with 36 percent share. SK hynix's HBM shipments are forecast to rise 56 percent this year to 19.2 billion gigabits, while Samsung's HBM revenue is expected to jump 189 percent to 24 trillion won.
Both companies are shifting away from quarterly contract cycles toward three- to five-year supply agreements with major customers. HBM has moved to an order-based "pre-order then manufacture" model that reduces inventory risk. These structural changes should reduce cycle volatility and generate more stable cash flow, according to Daishin Securities.
China poses a medium-term risk
China's CXMT is pushing for an initial public offering in the first half of the year, with YMTC potentially listing within the year. If a downturn returns before the structural shift solidifies, Chinese competitors could gain market share rapidly.
For now, solid AI demand and manufacturing constraints support prices. But whether the structural shift to long-term customer relationships and reduced cycle volatility succeeds will determine how much Korean semiconductor stocks can gain from the current cycle.
Learn more about the infrastructure requirements driving this shift through Generative AI and LLM courses, or explore how AI for IT & Development professionals manage semiconductor and infrastructure decisions.
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