Memory chips are AI's new oil: 3 giants join $1 trillion club for this reason

The artificial intelligence boom has propelled the market capitalization of the three major memory chip manufacturers, Samsung Electronics, SK Hynix, and Micron Technology, past $1 trillion each. This surge places their combined value 22% higher than the world's top three oil companies, highlighting memory chips as the "new oil" in the AI construction era.

Memory chip makers are experiencing unprecedented demand, far exceeding current production capacity. This imbalance has led to a sharp increase in chip prices, prompting manufacturers to secure long-term contracts with clients. Micron Technology has already signed a five-year supply agreement, while SanDisk has secured long-term deals for over a third of its next fiscal year's output. SK Hynix anticipates demand to significantly outstrip its supply capabilities for the next three years.

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In the AI construction era, memory is like the new oil.

These long-term contracts are expected to reshape the memory industry's business model, leading to more stable pricing and predictable profits. Analysts estimate that such contracts will cover 30% of total DRAM shipments next year, with major cloud service providers like Microsoft, Google, and Amazon already securing about two-thirds of the global server DRAM capacity. Cloud providers are reportedly willing to accept higher prices in exchange for supply visibility and predictable deployment costs.

The financial performance of these companies reflects this boom. Micron's adjusted earnings per share surged from $1.56 to $12.20 in the quarter ending February, with Wall Street projecting earnings per share to exceed $60 in the August quarter and reach $106 in the next fiscal year. Despite these strong prospects, Micron's forward price-to-earnings ratio is less than 10, making it one of the cheapest stocks in the S&P 500. Samsung Electronics and SK Hynix trade at even lower multiples, around 6 to 7 times earnings, significantly below the average of 26 for the Philadelphia Semiconductor Index.

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Large cloud service providers seem increasingly willing to compromise on price in exchange for supply visibility in the coming years and to make future deployment costs more predictable.