“Don’t Sell Samsung and SK Hynix Now”

Solid U.S. economic growth and liquidity indicators, along with improved earnings from AI infrastructure expansion, are countering interest rate hike pressures and driving big tech stock prices.

We observe solid U.S. economic and liquidity indicators, and expectations for improved earnings from companies expanding AI infrastructure are rising, suggesting that the market can withstand potential Fed rate hikes based on earnings.

Ahead of earnings season, improving earnings are expected to offset the burden of high interest rates and act as a key driver of stock price increases. UMR noted that the S&P 500's Q3 EPS growth rate forecast was revised upward from 29% to 30%.

This month, improved earnings across global stock markets, including the U.S., are expected to offset the burden of long-term interest rates in major countries, driving up stock prices.

Micron's long-term supply contract agreements increased from 16 to 26, and extensions and favorable condition changes were confirmed for existing contracts, becoming a background for the strength of semiconductor material and component companies.

Samsung Electronics' HBM4 market share reached 33% in Q2, narrowing the gap with SK Hynix, with ample room for future earnings improvement, according to analysis.

The won-dollar exchange rate, which was in the 1,500 won range in Q2 this year, fell to the 1,300 won range in Q3. These exchange rate fluctuations raise the possibility of a decrease in corporate operating profit.

Although the scale of the quarterly operating profit decrease varies depending on the estimation period, it is calculated to be between approximately 8 trillion won and 15 trillion won. Even considering the margin of error, the impact of the exchange rate decline on earnings is unavoidable.

During the share buyback period, foreign selling was high, but past cases show a trend of re-buying after the end. Therefore, instead of worrying about a foreign supply gap, attention should be paid to the emergence of buying entities based on corporate earnings, and an environment where both U.S. and Korean stock prices can rise is being created, it explained.

A strategy of lowering the average cost through additional purchases is also effective, and the expansion of long-term supply contracts in the semiconductor industry supports earnings stability.

With memory prices rising and an asymmetric situation where demand exceeds supply expected to continue, a positive investment strategy for AI-related stocks is necessary, according to the analysis.

The recent rise in long-term interest rates is a structural factor caused by increased fiscal spending due to wars and increased government bond issuance.

Unlike in the past, the argument that the stock market declines simply because interest rates are high has limited impact in the current market. Financial market instability after reaching the long-term interest rate threshold is likely to materialize in about a year rather than immediately; for example, in the 2004-2006 rate hike period, systemic risk occurred one year after sharp rate increases.

Despite recent inflation concerns about central banks further raising interest rates, the current rise in long-term rates is due to structural factors, thus having a limited impact on the stock market.

Increased fiscal spending and government bond issuance due to geopolitical risks like the Iran war are the main drivers of rising interest rates. The past logic that high long-term interest rates lead to stock price declines has lost its persuasiveness in the current market environment.

There was a case between 2004 and 2006 when the U.S. 10-year Treasury yield rose to its threshold of 5.2%.

One year after crossing that threshold, in February 2007, the subprime mortgage crisis occurred, followed by the suspension of BNP Paribas fund sales in August 2007, and the spread of systemic instability into the 2008 global financial crisis. It is possible that the high-interest rate environment will not immediately impact the stock market but rather see its full effects in the latter half of next year.