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Kioxia (KXIAY) is the structural low cost producer of NAND flash memory (yes, even compared to China) and is overhated relative to the big three DRAM suppliers. NAND (specifically Kioxia), will morph into an opportunity that is just as attractive as DRAM and its pump is only just beginning. Buckle in and let me take you on a journey.
[Since I was accused of this on my last DD post, I did not use AI to write this. I simply know I'm supposed to write with crayons, not eat them. This is not financial advice.](https://preview.redd.it/rlzjl5335c5h1.png?width=1545&format=png&auto=webp&s=f72d5dae7ca2e6b6d927082f791c0b9df1634184)
***NAND vs. DRAM:***
You must understand that NAND and DRAM are very different in terms of technology, competitive forces, and their place in the AI datacenter stack.
DRAM is well-loved right now because it has consolidated into an oligopoly among the big 3 producers (Samsung, SK Hynix, Micron) and has a scarcity premium for HBM. HBM sits on-chip and the direct integration allows for extremely low latency, higher bandwidth, and lower power consumption, all of which are critical for scaling AI.
NAND has been stigmatized as a datacenter play, as it has 6 producers of scale (Samsung, SK Hynix, Kioxia, Sandisk, Micron, YMTC) and is viewed much more as a commodity with no scarce, premium tier of product and much lower barriers to entry. NAND sits off-chip and is better for mass storage than accessing data at low latency. It is still critical in AI to bridge the gap between storage and processing, but it is much easier to make and efficiency gains have been easy because all you have to do is stack more layers vertically. Each generation of NAND has brought cost-per-bit down \~15% annually.
In the past, both have been viewed as extremely cyclical industries with no supply discipline by the manufacturers. However, if competition between the DRAM suppliers has historically been a knifefight, NAND has been a machete fight and total bloodbath. The competitive structure of NAND has meant that even a 1-point supply surplus crashes prices (NAND ASP crashed in 2022 when supply grew 32% vs. demand of 31%).
***Why NAND Dynamics are Rapidly Changing (it's deeper than AI = good):***
There are several ongoing and emerging factors that make the current state of NAND different than in the past and will lead to a sustained supply imbalance, keeping it attractive for the foreseeable future. The market is severely discounting the need for more and more NAND as AI inference propagates.
* **We are already seeing massive and growing NAND supply shortages.** AI training has been all about HBM (DRAM) since every GPU needs it. Despite this, we are already seeing a supply crunch in NAND, which has led NAND prices to increase +246% since Q1 2025 (including +57% and +72% QoQ price increases in Q1 and Q2 2026 alone). 2026 capacity is completely sold out.
* **Inference is the key to making this a long-term trend.** The coming shift of AI from training to inference is the catalyst for continued NAND shortages. Inference token volume is the fastest growing quantity in all of computing. AI is shifting from one-off prompts from human users to long-running conversations and AI agentic workflows (AI agents generate 100x more tokens than human users).
* **Inference has a scalability problem and NAND is the solution.** When you hear complaints that there is no cost-benefit to adopting AI, this is largely because almost all AI infrastructure to date has been geared towards *training*. Inference consumes an astronomical amount of memory and GPU KV cache size limits are very quickly exceeded regardless of on-chip DRAM. Offloading memory to NAND to hold inference context is necessary.
* **NAND is Nvidia's solution to the KV cache limit problem, which will sustain exponential demand growth.** Nvidia recently announced the Inference Context Memory Storage Platform (ICMSP) to standardize the offload of inference context to SSD (i.e., NAND). NAND will be an integral part of the official inference memory architecture. Consensus has NAND bit demand projected to grow at \~22% CAGR through 2028. However, this is composed of 46% growth in data center demand and 86% growth in AI inference bit-storage, offset by a decline in legacy consumer and mobile markets. At 86% growth, AI inference storage demand will roughly 3x by 2028.
* **NAND producers are aggressively adding capacity (typically very bad, but it won't matter as you read on below).** Every competitor in NAND (especially YMTC in China) is expanding capacity (with Kioxia planning to double capacity by 2029). The easy POV to take is that the demand will be completely swallowed by new supply because that's what happened in the past. YMTC is adding 120-140k per month of wafers capacity coming online late 2027 or 2028. All expansions will add \~25-28% supply, while \~86% growth in inference bit-storage demand is enough to keep prices flat-to-down once production ramps in 2028. This is bad, very very bad, for NAND historically.
* **Fortunately, consensus inference demand growth is wrong and real growth will be >100% (enough to keep NAND prices rising).** There are two phenomenon that will allow demand to more than absorb supply coming online. First, we are approaching the physical limits of our ability to continue stacking NAND vertically (at higher and higher layer counts, vertical etching and warpage become prohibitive). There are no more efficiency gains to be had by stacking layers vertically. Second, the market assumes efficiency gains in inference via compression will impede demand. However, the true driver of inference bit-demand is the number of concurrent requests by a user and the context length per request. These two variables are exploding as AI inference, particularly agentic AI (100x token usage), propagate. Models become bigger, requests become more frequent and complex, and the KV cache problem gets worse, not better. Jevons Paradox dictates that any efficiency gains via compression will actually only *increase demand*. The market assumes that inference efficiency gains will ultimately kill NAND demand, when the opposite is actually true.
***Kioxia is the Best Positioned NAND Producer in the Industry by a Long Shot:***
Where Micron, SK Hynix, and Samsung went all in on DRAM, Kioxia made a decision to go all in as a pureplay for NAND. Kioxia has several structural / strategic advantages over competitors despite a more fragmented market:
* **May I present to you** ***lateral bit-stacking*** **(please clap).** Kioxia's BiCS9 addresses vertical stacking constraints by shrinking in-plane geometry to pack more bits per layer *laterally*, which allows for \~60% higher storage density per layer. Kioxia can build a wafer 50% cheaper than Samsung and 66% cheaper than Micron and SK Hynix. They are lower cost than even China can produce. Goldman Sachs projected Kioxia's gross margins will be \~80%+ going forward.
* **Kioxia will continue to widen its moat with new innovation.** Kioxia is working to commercialize Horizontal Channel Flash (HCF) which enables further cost reduction for NAND memory. Where BiCS9 optimizes a vertical stacking model, HCF completely changes the geometry to flow electrical current horizontally (rather than vertically), which allows you to continue stacking vertically with more layers than physics allows for in current vertical stacking tech. *HCF is to NAND what HBM is to DRAM - once adopted this will take outsized production capacity away from ordinary NAND the same way HBM does to DRAM*.
* **Kioxia will soon have access to US institutional liquidity.** Kioxia is a Tokyo listed company and is available in the US via OTC (KXIAY), which institutions are not allowed to invest in. Kioxia recently announced plans to list in the US, which will come with sell-side initiations of coverage and ability for US institutions to invest for the first time. This liquidity will be a boost to share price, especially if/when it's added to the S&P 500.
**tl;dr**
While Micron, SK Hynix, and Samsung dominate DRAM, Kioxia is the best pureplay NAND producer. NAND is fighting off the same cyclical stigma that DRAM previously contended with. Demand for NAND will skyrocket in the coming years with the rise of inference and 100x usage of tokens by agentic AI, which structurally changes NAND industry dynamics. Kioxia's tech roadmap and status as the lowest cost producer in the world will allow it to dominate in NAND the way the big 3 do in DRAM. A future US listing is gasoline to the fire by enabling access for US institutional capital for the first time.
Positions: 50 shares and adding. Will allocate more to common and calls when US listing happens.