Core Viewpoint - The current storage cycle is characterized by "conservative expectations" and is driven by increased CAPEX from North American CSPs and overflow demand for HDDs, with expectations of sustained storage market growth at least until the second half of 2026 [1][2]. Supply Side - The previous storage cycle began in June 2023, with major manufacturers reducing production, leading to a balance in supply and demand for DRAM and NAND Flash, resulting in price increases of 20%-70% for DRAM and 80%-200% for NAND Flash from their lows [1][2]. - Current NAND production capacity utilization is around 80%+, with cautious CAPEX planning from NAND manufacturers, which may create a supply gap [4][5]. - Major NAND manufacturers have announced production cuts of 10%-15% since December 2024, focusing on higher-tier products and reducing supply of lower-tier products [2][4]. Demand Side - The surge in AI CAPEX is driving demand for data center storage, with expectations of an 81% and 64% year-on-year increase in AI CAPEX for 2025 and 2026, respectively [3]. - There is a significant supply shortage of HDDs, leading CSPs to consider transitioning to eSSD for cold data storage, with enterprise SSD demand projected to reach 339.2 billion GB by 2026, a 35% increase year-on-year [3][5]. Price Trends - Since September, NAND manufacturers have begun to raise prices, with SanDisk announcing a price increase of over 10% for flash products due to high demand for enterprise eSSD and tight supply of lower-tier products [6]. - NAND Flash wafer and module prices have seen slight increases, with expectations of a 5%-10% price rise in Q4 2025 [6]. Investment Strategy - The industry is optimistic about the sustained demand for enterprise SSDs, with recommendations to focus on companies that are rapidly advancing in enterprise storage and benefiting from price increases [8].

Investment Rating - The report maintains a "Buy" rating for the company with a target price of 129.10 RMB [4][6]. Core Insights - The company achieved a record high quarterly revenue of 59.39 billion RMB in Q2 2025, benefiting from improved terminal demand and a healthier inventory level in the downstream market [1][2]. - The gross margin improved to 14.82% in Q2 2025, reflecting effective cost control measures and a recovery in storage prices [1][2]. - The company is expected to see continued growth in its enterprise storage and overseas business, with a positive outlook for storage prices in the second half of 2025 [3][4]. Summary by Sections Financial Performance - In 1H25, the company reported revenue of 101.96 billion RMB, a year-over-year increase of 12.80%, but a significant decline in net profit to 0.15 billion RMB, down 97.51% year-over-year [1][2]. - Q2 2025 revenue was 59.39 billion RMB, up 29.51% year-over-year and 39.53% quarter-over-quarter, with a net profit of 1.67 billion RMB, reflecting a 20.55% decrease year-over-year but a 209.73% increase quarter-over-quarter [1][2]. Business Growth - The Lexar brand's overseas business grew by 31.61% year-over-year in 1H25, while Zilia's revenue increased by 40.01% year-over-year, indicating strong international demand [2]. - The enterprise storage segment saw a remarkable 138.66% year-over-year revenue growth in 1H25, with Q2 2025 revenue reaching 3.74 billion RMB, up 17.24% quarter-over-quarter [2]. Market Outlook - The report anticipates that storage prices will continue to rise in the second half of 2025, driven by production cuts from major suppliers like Samsung and Micron, as well as seasonal demand in consumer electronics [3]. - The company is expected to benefit from increased capital expenditures in data centers by major clients like ByteDance and Alibaba, which will drive demand for its enterprise storage products [3]. Valuation Adjustments - Revenue forecasts for 2025-2027 have been revised upward to 241.6 billion RMB, 275.0 billion RMB, and 303.6 billion RMB, respectively, reflecting a 6.2%, 3.0%, and 2.7% increase from previous estimates [4]. - Net profit forecasts for the same period have also been increased significantly, with expected profits of 10.5 billion RMB, 13.5 billion RMB, and 15.1 billion RMB, representing increases of 56.7%, 23.0%, and 19.4% [4].