Korean Semiconductor Stocks Surge 33% on AI Demand, Supply Imbalance

In recent weeks, the market value of two major Korean semiconductor companies has surged by over 100 billion dollars, driven by a surge in demand for memory chips. This rapid increase in market value is expected to continue, fueled by the growing AI trend that has spread to less noticeable corners of the tech industry. Analysts have raised the target stock prices for these two companies by approximately 30% this quarter, with Morgan Stanley predicting a potential supply-demand imbalance in the storage sector next year. This imbalance could lead to a "supercycle" in the memory chip industry, where demand significantly outstrips supply, driving up prices and profits for manufacturers. The current market conditions suggest that these stocks remain relatively undervalued, presenting a potential opportunity for investors. The AI boom has extended beyond high-bandwidth memory (HBM) to traditional storage solutions, further boosting the prospects for Korean semiconductor stocks.

SK Hynix, a leading manufacturer of high-bandwidth memory (HBM) chips, has seen its stock price soar this month due to its dominant position in this critical area for AI applications. Investors are also increasingly betting on Samsung Electronics, SK Hynix's larger competitor, to catch up in the HBM market. The growing demand from AI processor manufacturers, beyond NVIDIA, is driving a chain reaction that is benefiting traditional technology chips, which were previously seen as having limited prospects. The increased demand for HBM chips from companies like AMD and Broadcom, as they gain more customers with their AI accelerators, is expected to further boost the market. Additionally, the rising adoption of HBM in China's AI chips is anticipated to provide extra benefits.

The pessimistic outlook on traditional DRAM and NAND chips is dissipating. Earlier this year, cautious experts warned that other semiconductor sectors were being impacted by the sluggish smartphone and automotive markets, even as the AI frenzy drove chip stocks higher. However, as chip manufacturers shift production capacity to the more profitable HBM sector, traditional storage chips are expected to face a supply shortage by 2026. This should support the prices of DRAM and NAND chips. Furthermore, the Federal Reserve's rate cuts could help bolster the growth of the United States, the world's largest economy, thereby stimulating chip sales.

With the Federal Reserve initiating an easing cycle, the momentum for AI chip stocks is recovering. It is expected that Korean companies will continue to receive inflows of foreign funds due to their lower valuations compared to American companies. Despite the 24% increase in Samsung Electronics' stock price this month, its forward price-to-earnings ratio remains at just 14 times. SK Hynix's stock price has surged by 33% this month, with a price-to-earnings ratio of only 7 times. In contrast, the price-to-earnings ratio for major American chip manufacturers is around 26 times. Foreign investors are flocking to these Korean semiconductor companies, with the monthly cash inflow expected to reach a historical high. However, they are still considered "underallocated" due to the perception that the Korean market is not friendly to shareholders.

Analysts predict that the stock prices of these two Korean semiconductor giants will continue to rise, driven by the strong demand for AI and the resurgence in traditional storage products. The increased capital expenditure by major cloud computing companies and other firms is expected to benefit both Samsung Electronics and SK Hynix, as memory is a fundamental component of AI infrastructure. The shift in production capacity towards HBM chips is likely to support the prices of traditional storage solutions, further enhancing the prospects for these Korean semiconductor stocks.