UBS strategist Sunil Tirumalai told clients on Monday that a tightening in the global memory-chip cycle is shifting return on invested capital (ROIC) away from the U.S. and toward parts of Asia. He highlighted DRAM and NAND shortages as emerging constraints for AI supply chains, with UBS expecting DRAM to remain undersupplied until 4Q27 and NAND until 1Q27.
Tirumalai said the resulting price strength is likely to lift profitability at Samsung and SK Hynix to levels not previously seen. UBS estimates the free cash flow from these two companies will account for more than 4% of global corporate free cash flow in 2027E and roughly 14% of all emerging-market free cash flow in the same year.
The note adds that, for a multi-year window, the cash generated by Samsung and SK Hynix could exceed the combined cash flow of U.S. hyperscalers. UBS framed that outcome as a material reallocation of ROIC from the U.S. profit pool to this region, and said the bank is becoming more constructive as a result.
Reflecting that view, UBS upgraded its recommendation on Korea to Overweight, arguing there remains value despite recent market gains. The bank’s analysis shows the next three years of free cash flow from Samsung and SK Hynix equal between 70% and 90% of their current market capitalization, and their balance sheets are noted as effectively debt-free, supporting the outlook.
UBS also reported that its Korea team’s earnings-per-share model for MSCI Korea in 2027E is about 40% above consensus. Tirumalai cautioned, however, that the thesis depends on sustained high AI capital expenditure and warned that Korea is among the more exposed emerging-market regions to potential U.S. tariffs.
Key figures and quotations in the client note include:
- Projected undersupply of DRAM until 4Q27 and NAND until 1Q27.
- UBS estimate that Samsung and SK Hynix free cash flow will be 4%+ of global corporate FCF in 2027E and about 14% of emerging-market FCF.
- Statement that, for a couple of years, the cash flow from these two stocks could surpass combined U.S. hyperscaler cash flow.
The UBS note stresses upside if AI-related capex remains elevated, while explicitly identifying tariff exposure as a countervailing risk to the Korea upgrade.
Summary
UBS argues that a prolonged memory-chip shortage is creating a significant profitability opportunity for Korean memory manufacturers. With DRAM and NAND expected to stay undersupplied through late 2026 and early 2027 respectively, Samsung and SK Hynix could generate outsized free cash flow that materially shifts ROIC toward Asia, prompting UBS to upgrade Korea to Overweight.
Key points
- Memory shortages in DRAM and NAND are projected to persist into 2027, tightening AI supply chains and supporting higher pricing.
- UBS expects Samsung and SK Hynix free cash flow to represent a significant portion of global and emerging-market corporate FCF in 2027E, and potentially exceed U.S. hyperscaler cash flow for a period.
- UBS upgraded Korea to Overweight, citing valuation and the cash-flow outlook, and its Korea team models are materially above consensus for 2027E EPS.
Risks and uncertainties
- Reliance on sustained high AI capital expenditure - the positive cash-flow and ROIC shift assumes continued elevated AI capex.
- Exposure to U.S. tariffs - Korea is identified as relatively exposed among emerging-market regions to potential tariffs, which could affect the outlook.