Goldman Sachs on HBM: A market that grows tenfold in four years, with Micron Technology taking over more than half of the market share, while Intel may come from behind

Goldman Sachs recently released a research report stating that the stronger demand for Generative Artificial Intelligence (Gen AI) is driving higher AI server shipments and higher High Bandwidth Memory (HBM) density per GPU. The bank has significantly increased its total market size estimate for HBM, now expecting the market size to grow tenfold from 2022 to 2026 (with a 77% compound annual growth rate over 4 years), from $2.3 billion in 2022 to $23 billion in 2026.

HBM to Remain in Short Supply, Unlikely to See Price Reductions

Despite suppliers planning to significantly increase HBM production capacity to meet strong demand growth, several factors may lead to continued industry supply shortages, which Goldman Sachs expects to persist in the coming years.

Goldman Sachs believes that the stronger demand for AI servers and higher HBM content per GPU still significantly outweighs the capacity expansion of suppliers (especially HBM), particularly because the production yield of HBM is significantly lower than conventional DRAM. All suppliers have mentioned that their 2024 HBM capacity has been fully booked by customers and discussions have already taken place with customers regarding HBM allocation for 2025.

Based on supply and demand analysis, Goldman Sachs believes that the HBM market will continue to be tight this year/next year, with a 2.0%/1.0% supply shortage, and become more balanced in 2026, but still with a slight 0.7% supply shortage. Therefore, Goldman Sachs continues to believe that significant price declines for HBM are unlikely, and high pricing premiums will persist in the coming years.

The report indicates that although HBM3 was the mainstream product last year, accounting for over 50% of revenue share due to its use in the NVIDIA H100 chip, Goldman Sachs expects the revenue share of HBM3E to rise rapidly this year, as both the NVIDIA H200 and the recently announced Blackwell GPU will support this latest generation of HBM.

Goldman Sachs expects that by 2025, the revenue share of HBM3E will surpass that of HBM3, as NVIDIA and AMD will continue to use HBM3 extensively this year. The bank forecasts that revenue from HBM4 will start to appear from 2026, aligning with the timeline of HBM suppliers completing development by 2025 and starting mass production in 2026.

Micron, Samsung, SK Hynix to Benefit, SK Hynix Market Share Expected to Maintain Above 50%

Goldman Sachs believes that all major DRAM suppliers, including SK Hynix, Samsung Electronics, and Micron, will benefit from the strong growth in the HBM market and tight supply-demand dynamics. This has led to a sustained significant pricing premium for HBM and may increase the overall DRAM profit margins for each company.

Goldman Sachs believes that SK Hynix has better productivity and output compared to its peers. Goldman Sachs expects SK Hynix to maintain its market share of over 50% in the next 2-3 years, thanks to SK Hynix's extensive collaboration experience with major GPU customers (primarily Nvidia) and the company's strong supply chain, as well as relatively higher productivity and yield in Mass Reflow Molded Underfill (MR-MUF) technology. However, Goldman Sachs points out that one factor that needs to be closely monitored is that SK Hynix's customers may require diversified suppliers to prevent supply chain bottlenecks and reduce costs.

For Samsung, Goldman Sachs believes it has the opportunity to gain market share in the medium term as the company has developed the industry's first 12-Hi HBM3E. However, Goldman Sachs believes execution will be key as there is a significant gap between product development and generating meaningful revenue from the product.

Goldman Sachs continues to believe that Samsung is the only company globally capable of providing a one-stop HBM service, which may help it maintain market share in the long term. Samsung already has experience in providing small-scale 2.5D packaging "H-Cube" to customers and established an advanced packaging team in 2022 to focus on this area. Samsung also mentioned at its annual shareholder meeting on March 20 that it expects its 2.5D packaging revenue to reach $1 billion this year, indicating significant progress.

For Micron, as the company narrows its focus to HBM3E, Goldman Sachs believes that as industry demand increasingly shifts towards HBM3E, the company will benefit. Goldman Sachs expects Micron to potentially surpass its peers starting from 2025, but whether it can gain significant market share will depend on how quickly it can expand its relatively small HBM capacity.

Goldman Sachs reiterates its buy ratings for SK Hynix, Samsung, and Micron. Given the higher HBM market size and memory pricing estimates, Goldman Sachs has raised SK Hynix's target price from KRW 185,000 (approximately $138.75) to KRW 210,000 (approximately $157.5) and increased Samsung's target price from KRW 95,000 (approximately $71.25) to KRW 97,000 (approximately $72.75).

Goldman Sachs expects that higher-than-expected memory pricing will result in operating profits of KRW 19 trillion (approximately $14 billion) and KRW 58 trillion (approximately $44 billion) for the two companies, respectively, which is about 20% and 7% higher than consensus estimates