Bernstein issues underperform rating on Kioxia ($285A):
Price target set to ¥40,000 , implying greater than 50% downside risk. The firm acknowledges that near-term momentum remains strong, with NAND pricing still rising, earnings growth expected to remain material, and the stock continuing to benefit from the broader AI-driven memory shortage. However, Bernstein’s core concern is that the market is capitalizing peak-cycle earnings as though they represent a sustainable long-term earnings base.
The report argues that NAND pricing is likely to peak in CY2027 and normalize into CY2028 as supply additions begin to catch up with demand. Bernstein’s SOTP framework treats the current earnings surge as a temporary windfall rather than a repeatable margin structure, assigning value to excess cash generation through CY2028 but applying normalized multiples to longer-term earnings. Under that framework, the firm estimates fair value at roughly ¥40,000 per share, implying approximately 50% downside from the current share price.
A key focus of the report is whether long-term agreements can reduce cyclicality in NAND earnings. Bernstein concludes that LTAs and financial guarantees may improve trough profitability but are unlikely to prevent meaningful earnings volatility. If spot prices fall sufficiently below LTA floor prices, customers may be economically incentivized to walk away from agreements and forfeit guarantees. Bernstein estimates that the current stock price would require either a 65% normalized gross margin, an 80% financial guarantee on LTA value, or a shortage lasting until CY2032, none of which it views as realistic.
The broader structural concern is China. Bernstein argues that aggressive NAND price increases could give YMTC and other Chinese suppliers greater room to scale, potentially allowing YMTC to become the third-largest NAND supplier by CY2028. The implication is not that memory fundamentals are weak near term, but rather that current profitability may be too high to sustain without attracting new supply and customer substitution.