Asian chip stock leadership is undergoing a significant shift. South Korean memory maker SK Hynix Inc is seeing its substantial gains for the year wane due to a global rotation away from overheated artificial intelligence (AI) winners. Conversely, foreign investor interest in Samsung Electronics Co is boosting its shares, with the company expected to secure more business from key AI chip designer Nvidia Corp.
Roh Jongwon, the chief investment officer of Infinity Global Asset Management, predicts that the gap between SK Hynix and Samsung stocks will “soften” as SK Hynix shares appear set to decline more sharply. “SK Hynix absolutely outperformed Samsung Electronics so far this year, but the higher the mountains, the deeper the valley,” said Roh.
Last month, Samsung was the sole gainer on a six-member Bloomberg Intelligence gauge of memory-related stocks, rising nearly 3%. In contrast, SK Hynix and Micron Technology Inc both fell by more than 16%. On Friday, SK Hynix shares plummeted over 10% amid a global tech sell-off, while Samsung’s shares dipped by 4.1%.
SK Hynix had rapidly become the leading supplier of high-bandwidth memory (HBM) chips, crucial for AI accelerators. However, Samsung is making strides, recently announcing plans to significantly increase its HBM output. The company expects approval from Nvidia for its next-generation HBM3E chip within two to four months, according to Bloomberg News.
“From Nvidia’s perspective, it cannot meet demand with supplies from SK Hynix only,” stated Jung In Yun, the CEO of Fibonacci Asset Management Global. He added, “Once Samsung passes the qualification test from Nvidia, its revenues next year will grow explosively,” suggesting that now is the time to increase bullish exposure to Samsung stock.
Foreign investors, who play a significant role in daily trading in Asian markets, have begun adjusting their positions. In July, they sold US$1.50 billion worth of SK Hynix shares on a net basis, marking their first withdrawal in three months, while adding US$2 billion worth of Samsung shares.
Samsung’s gains may also be coming at the expense of AI chip stocks outside of South Korea. Global funds sold a net US$5.8 billion of Taiwan Semiconductor Manufacturing Co (TSMC) shares last month. TSMC experienced a 3.3% decline in July, its first monthly loss since September last year.
Despite these shifts, sell-side analysts remain optimistic about both South Korean memory makers. There are currently 41 buy recommendations for SK Hynix and 39 for Samsung.
Kazunori Ito, an analyst at Morningstar Inc, remains cautious, noting that SK Hynix still appears “slightly overvalued” even after its worst monthly drop since 2011. Ito has the only sell recommendation on SK Hynix. “SK Hynix’s share price has been too optimistic as expectations for AI server demand were too high,” Ito said. “We continue to prefer Samsung Electronics over SK Hynix due to the lower valuation, and if Samsung succeeds in passing Nvidia’s qualification test for HBM3E, it will be the catalyst to narrow the valuation gap.”
Featured Image courtesy of Nikkei Asia