Suddenly, a sharp drop! Citibank announces: downgrade! Chips, suddenly hit with bad news

The world’s “hottest sector” suddenly cools down.

On March 31, before the US stock market opened, storage chip concept stocks continued to weaken, with Micron Technology dropping nearly 2% at one point, and SanDisk falling over 2%. The previous trading day, Micron and SanDisk declined by over 9% and 7%, respectively. According to news, Citigroup lowered Micron’s target price from $510 to $425. Additionally, today, the storage chip sectors in Japan and South Korea all plummeted, with SK Hynix dropping over 7%, and Samsung Electronics falling more than 5%.

According to Citigroup’s report, Google’s new TurboQuant technology caused a plunge in memory prices, with mainstream DDR5 16GB spot prices recently down 6%. Morgan Stanley also stated that demand for AI computing power continues to grow, but customers’ ability to bear high prices for DRAM (Dynamic Random Access Memory) has become a significant constraint, putting valuation downgrades pressure on related manufacturers.

Citigroup announces: Downgrade

On March 31, Citigroup analyst Atif Malik released a report stating that Micron’s target price was lowered from $510 to $425, a 17% decrease.

The report shows that the spot price of mainstream DDR5 16GB DRAM recently fell about 6%, mainly due to market concerns over Google’s TurboQuant technology. This technology is believed to potentially reduce memory consumption for AI inference, combined with prior stockpiling and large-scale sell-offs, which have sparked worries about storage demand prospects.

This is the first significant correction since the recent surge in storage chip prices, with market sentiment quickly shifting from “full shortage” to a wait-and-see attitude.

As a result, during today’s Asian trading hours, storage chip stocks in Japan and South Korea all fell sharply. By the close, SK Hynix dropped 7.56%, Samsung Electronics fell 5.16%, and Kioxia declined 4.7%. On the US East Coast on the 30th, US stock storage chip concept stocks also collectively tumbled, with Micron down nearly 10%, Western Digital down over 8%, SanDisk down over 7%, and Seagate Technology down over 4%.

Before the US stock market opened today, Micron’s stock price continued to weaken, with a decline approaching 2%, and SanDisk once fell over 2%.

Citigroup analysts lowered Micron’s valuation multiple from a 6x to a 5x cycle bottom P/E ratio, and based on the expected peak EPS in 2027, set a new target price of $425, consistent with the historical valuation bottom range of 5 to 6 times during DRAM’s cyclical upturns.

It is worth noting that Citigroup maintained all of Micron’s financial forecasts: core EPS for fiscal 2026 is projected at $58.46, and for fiscal 2027 at $94.55. The current stock price corresponds to an estimated P/E ratio of about 5.5x for 2026 and about 3.4x for 2027, at relatively low historical levels.

The report points out that although the spot market is under pressure, the downside risk to contract prices is relatively controllable. Micron and its storage industry peers are negotiating three- to five-year strategic long-term agreements with large cloud computing providers, covering terms such as locking in basic purchase volumes, prepayment mechanisms, and dynamically adjusting quarterly prices based on market conditions.

The framework of these long-term agreements is expected to provide structural support for contract prices. About 79% of Micron’s revenue comes from DRAM business, making the trend of contract prices crucial to its profitability.

In the report, Citigroup wrote that the impact of Google’s TurboQuant on storage demand is similar to the previous DeepSeek event: on the surface, efficiency-enhancing technology reduces the computational and memory costs per AI inference, but lower usage costs will further release application volume, ultimately boosting overall computing power and total memory demand.

Downward valuation pressure

Morgan Stanley also stated in its latest report that, with the advancement of KV cache (KV cache) compression technology, server system optimization, and long-term agreement (LTA) negotiations, the traditional memory industry is facing unavoidable valuation downgrades.

Morgan Stanley noted that although enthusiasm for AI chips has not waned, customers’ ability to bear high prices for DRAM has become a substantial constraint.

Based on this logic, Morgan Stanley generally lowered target prices for traditional memory manufacturers related to DRAM. The report indicates that valuation multiples are the main adjustment focus, meaning that even if short-term prices do not fall sharply, the valuation centers of related stocks have already experienced a systematic downward shift.

Regarding the sharp drop in spot prices, Goldman Sachs pointed out in its report that a correction in spot prices is inevitable. Previously, the premium of spot prices over contract prices was at a significant high, with DDR5 and DDR4 spot prices respectively at 25% and 111% above February contract prices. Such extreme premiums lead buyers to adopt a wait-and-see approach; even after substantial corrections, spot prices remain well above contract prices and historical absolute levels.

South Korean broker Daishin Securities also pointed out that the enterprise contract market has not been affected by this wave, as major cloud service providers still have urgent demand for server memory, and the supply-demand fundamentals have not fundamentally reversed. The spot market mainly consists of PCs and consumer electronics, which account for only a single-digit percentage of total market transactions.