SK Hynix has surged 250% this year. The rally may be only halfway done
SK Hynix’s blistering rally may still have room to run even after the South Korean memory-chip giant surged more than 250% this year on booming artificial intelligence demand, analysts said. The stock’s sharp rise propelled SK Hynix’s market capitalization above $1 trillion as investors piled into companies seen as key beneficiaries of the global scramble for high-bandwidth memory chips used in AI servers. “It seems the fundamentals and valuations of the two twin towers are still very much intact,” Peter Kim, global investment strategist at KB Securities, told CNBC’s ” Squawk Box Asia “, referring to SK Hynix and Samsung Electronics. However, some strategists argued that valuations remain relatively inexpensive despite the rally because earnings forecasts have climbed faster than share prices. “In fact, it’s amazing that the valuation is getting cheaper because the race rate of earnings upgrades by analysts is actually surpassing the share price,” Kim added. He added that U.S. memory giant Micron Technology traded at around 12 times earnings, while SK Hynix and Samsung traded at roughly six to seven times earnings, based on analyst estimates. “If you look at the share price, but if you look at the valuation fundamentals, I would say that we’re still not halfway through this incredible rally,” Kim said. In a recent note, Wedbush Securities analyst Dan Ives described the current AI boom as being only i n the “3rd inning of a 9-inning game.” “The AI Revolution is firing on all cylinders,” Ives wrote, adding that demand for HBM, DRAM and NAND memory had reached “levels never seen before.” While HBM is used in AI accelerators and servers, DRAM and NAND are widely used memory and storage chips across electronic devices. “We believe SK Hynix is a core beneficiary of this memory super-cycle and represents one of the most important AI plays in the market today as the Street still significantly underestimates the duration and magnitude of this cycle,” he said. Ives said chip demand continues to outstrip supply as cloud giants accelerate AI infrastructure spending, with Big Tech capital expenditure projected to reach roughly $725 billion. Concentration risks? Still, some investors have grown uneasy about the market concentration risks building up in South Korea’s equity market. Samsung Electronics and SK Hynix account for more than 40% of South Korea’s benchmark Kospi , rising concerns that the market could become more exposed to risks, including supply chain disruptions and a slowdown in global data center investment. Kim noted that the market had become “a very polarized situation,” with a handful of AI-linked stocks exerting an outsized influence on benchmark performance. Despite the concerns, he argued the key risk that typically ends semiconductor upcycles was unlikely to emerge soon. “What will really break this cycle… is ultimately always overcapacity, but the capacity is going to take at least a couple of years to come through,” he said. “That’s why I say that we’re probably about halfway through this rally.” Other investors, however, have started to become more selective after the sharp gains in Asian semiconductor stocks. Philip Wool, lead portfolio manager at Rayliant Global Advisors, said enthusiasm around AI hardware had now spread well beyond U.S. tech stocks into emerging markets. “We still hold SK Hynix … as well as Samsung Electronics, TSMC , and others, and these are still great companies with amazing growth,” Wool said. “But AI enthusiasm, which was mostly a developed markets phenomenon before, has obviously finally rippled out to emerging markets,” he added. Wool warned that stocks such as SK hynix, Taiwan Semiconductor Manufacturing Company and Samsung now faced “a higher bar now for outperformance” as investors increasingly expect extraordinary levels of AI-related capital spending to continue.
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