Memory chip stocks have taken a particularly bad beating this week amid broader equity market turmoil.
Two concerns are adding to the pressure — the debate over whether Chinese competition is threatening memory incumbents and speculation about when the market could become oversupplied.
Over the last five days, SK Hynix has plunged 26%, Samsung has tanked 22% and Micron has dropped around 11%.
China worries
The initial jitters came at the start of the week after China's leading memory chipmaker ChangXin Memory Technologies, or CXMT, announced plans to roll out a server memory product based on new architecture.
CXMT's design would allow higher storage density, raising concerns that the breakthrough could result in the Chinese company taking global market share from rivals Samsung, SK Hynix and Micron.
However, a number of analysts questioned whether CXMT would be able to scale the production of such an advanced technology.
"The issue, of course, was with any architectural change ... you can make the chips, but what yield are you getting? If you're only getting a 50% yield, you're literally putting half the chips in the bin because they don't work very well," Ben Barringer, global head of technology research at Quilter Cheviot, told CNBC's "Squawk Box Europe" on Wednesday.
Kevin Cassidy, a senior research analyst at Rosenblatt Securities, also said the developments at CXMT are unlikely to add more supply of memory onto the market.
"We don't think this is going to swing the supply-demand equation at all," Cassidy told CNBC.
Oversupply by 2029?
Traders are also discussing comments from an opinion column in Maeil Business Newspaper, a prominent South Korean publication, in which a reporter urged the country's government to prepare for a slowdown in the AI boom and to identify and develop the next big growth engine.
The writer said that two people — Professor Hwang of the Seoul National University and Ahn Ki-hyun, executive director of the Korea Semiconductor Industry Association — expect to see a "flood of new supply" that will turn the memory market "into a red ocean" in 2029, according to a CNBC translation. By 2030, "the supercycle could be over and the industry could enter a downturn," the writer said.
SpaceX and Tesla CEO Elon Musk responded to the article in a post on X, saying that China "will be making a LOT of RAM in 2028."
Random access memory (RAM) is produced by the likes of SK Hynix, Samsung and Micron as well as CXMT in China.
An oversupply of RAM in 2029 would pose yet another headwind for memory stocks, with lower prices and a squeeze on profit margins. But a forecast that far out hasn't been echoed by other analysts.
Typically, the biggest customers for memory chips have been consumer electronics companies, because memory is a key component of devices like smartphones and laptops.
But with the AI boom picking up pace, memory has also become a key component of Nvidia chips and other parts of the data center supply chain. With demand increasing, supply has tightened, leading to unprecedented price rises.
That has led to huge rallies in the share price of Samsung, SK Hynix and Micron, the three biggest memory makers. But a key question for investors is whether the industry’s typical boom-and-bust cycle is finally changing.
Memory prices have traditionally surged when demand outstrips supply, only to fall as manufacturers ramp up production and the market becomes oversupplied. Investors are trying to work out if that cycle no longer exists or whether there has been a fundamental change.
All of the major memory makers are currently in the process of expanding capacity, but it takes around three to five years for a factory to be built and come online.
That has led many analysts to forecast that the shortage won't ease until 2028 — but that might not necessarily lead to huge price declines.
Counterpoint Research sees the price of DRAM, another key type of memory, falling around 23% in 2028 compared with 2027. However, the DRAM price would still be up around 230% compared to 2025.
"The current memory market is considered to be in a 'New Normal' era, and the down cycle will differ from previous ones," Jeongku Choi, senior research analyst at Counterpoint Research, told CNBC.
"Suppliers and buyers enter into 3- to 5-year Long-Term Agreements (LTAs), involving substantial upfront payments and established upper and lower price limits to ensure consistency. Consequently, even if a down cycle occurs, it is not expected to show the same sharp decline seen in the past."
— CNBC's Lisa Kim helped contribute to this report.