“Should We Buy Samsung and Hynix Again?”—Brokerages Take Another Look at Semiconductors

[Financial News] The KOSPI Composite Index’s rebound has been delayed as oil prices and government bond yields rise together amid the prolonged war involving Iran. Still, securities analysts continue to forecast that the semiconductor sector will lead the stock market’s upward trend.
According to the financial investment industry on the 13th, Kang Dae-seung, a researcher at SK Securities, assessed in a report released on the 11th that semiconductors remain relatively attractive investments. He stated, “Although the KOSPI Composite Index’s upside is capped at 7,500, semiconductors remain a buy in terms of relative attractiveness, given that earnings momentum is still intact and alternative sectors are currently weak.”
Kang cited the relatively strong performance of information technology (IT) companies even amid high oil prices and high interest rates in the first half of this year. Oil prices and government bond yields rose simultaneously after geopolitical risks in the Middle East came to the fore in March. From a conventional perspective, AI-related companies, which are generally classified as growth stocks, should have weakened while value stocks performed relatively well. In reality, however, the market moved in the opposite direction, he explained.
Kang also pointed to specific market trends. “From March through May 19, the market-cap-weighted S&P 500, which has a high IT weighting, outperformed the equal-weighted index,” he said. “By contrast, in June, when oil prices and interest rates stabilized at lower levels, the equal-weighted index shifted to outperform the market-cap-weighted index.”
However, Kang did not suggest that the semiconductor sector’s upside was unlimited. “Although earnings are supporting the downside, it is true that the current environment makes it difficult to expect gains like those seen in the first half, given weaker expectations for a rerating and supply-and-demand factors,” he said. He added, “Considering restrictions and entry regulations on leveraged exchange-traded fund (ETF) trading to control volatility, as well as concerns that capital expenditures (CAPEX) could accelerate again while major big tech companies are expected to shift to negative cash flow, reclaiming the previous high appears difficult.”
Even so, Kang placed greater weight on the possibility of semiconductors showing relative strength. “With uncertainty surrounding Iran and interest rates still high, semiconductors are likely to show relative strength as other sectors become less attractive,” he emphasized. Upward revisions to second-half earnings per share (EPS) estimates are currently being led by the consumer discretionary and energy sectors, but he judged both sectors to be vulnerable in a high-oil-price, high-interest-rate environment.
Kang also discussed the limitations of the consumer discretionary and energy sectors. “Consumer momentum is not strong for consumer discretionary stocks in a high-interest-rate, high-oil-price environment. For energy stocks, given that oil prices surged from March this year, their contribution to EPS growth is likely to gradually decline,” he said. By contrast, “Despite the sharp deterioration in investor sentiment in July, earnings forecasts for semiconductor companies in the United States and Korea this year and next remain solid, supported by the CAPEX plans of major U.S. IT companies and strong AI computing demand reflected in GPU rental prices,” he noted.
[email protected] Han Seung-gon Reporter