Kioxia's stock price plunged 17%, and the outlook for the AI storage super-cycle has changed

In June of this year, benefiting from the memory super-cycle driven by the AI wave, Kioxia had at one point risen to become the highest-market-cap listed company in Japan.

The trigger for Monday's sell-off was not poor financial results. The financial report Kioxia released last Friday showed that in the second quarter of fiscal 2026 ended September, the company's revenue reached 2.48 trillion yen, up 453.20% year-on-year, with single-quarter revenue already exceeding the approximately 2.34 trillion yen of the entire previous fiscal year; adjusted operating profit surged 2181.10% year-on-year.

The problem lay in the outlook. Kioxia forecast last Friday that operating profit for the December quarter would be 2 trillion yen (about $12.7 billion), below the 2.35 trillion yen generally expected by analysts.

That forecast indicates that compared with the 1.99 trillion yen in operating profit recorded in the September quarter, growth has nearly stalled. In the past several quarters, Kioxia's operating profit had consistently shown a strong upward trend.

Kioxia mainly attributed this weak growth to shipment timing issues rather than deteriorating demand.

At customers' request, some orders originally scheduled for delivery this quarter were brought forward to the September quarter, while other orders were postponed to the March quarter of next year, because the share of enterprise storage product orders increased, and such products require longer production cycles.

Kioxia Chief Financial Officer Yoshihiko Kawamura said on a conference call last week that the company expects to return to a rapid growth trajectory in the March quarter of next year, and that demand from AI data center operators remains strong.

He said the company's planned capacity for next year has already sold out, and more than half of the capacity for the year after has been allocated. Some major customers have even begun negotiating contracts for 2029 and beyond.

However, investors are increasingly skeptical of the growth narrative Kioxia has painted, because company executives have been rather cautious when laying out their outlook.

Kioxia's potential disadvantage may lie in its focus on NAND flash, while its South Korean competitors also sell DRAM chips—another key component in AI computers—and therefore have stronger bargaining power.

In the second quarter of 2026, Kioxia's average NAND selling price rose about 70% quarter-on-quarter, but by the third quarter the increase had plunged to about 20%. This price signal also alarmed the market and became one of the key factors weighing on investor sentiment.

For memory chip stocks, the market usually focuses more on the pace of price changes than on absolute price levels, and this signal was interpreted as a possible inflection point in the current upcycle.

On Monday, Samsung Electronics fell more than 3% in early trading and SK Hynix fell more than 1%, but both later reversed their losses; as of publication, Samsung shares were up 0.44% and Hynix shares were up 2.75%.

Another important factor that exacerbated Monday's decline was the inherent fragility of Kioxia's shareholder structure. Among all listed companies on the Tokyo Stock Exchange, Kioxia has the highest concentration of leveraged long positions, and once a negative catalyst appears, margin traders face pressure to sell involuntarily.