SK Hynix to Enhance Shareholder Returns, Boosting Expectations for Long-Term Semiconductor Market Growth

SK Hynix announced its plan to increase the shareholder return ratio based on free cash flow (FCF) from less than 50% to over 50%. This is considered a groundbreaking shareholder return policy, with further announcements expected. This move is raising expectations that shareholder returns will expand across the broader semiconductor industry, including Samsung Electronics.

Despite the US 10-year Treasury yield falling to 4.68%, the domestic market remained weak and failed to rebound. Analysis suggests that the interest rate hike merely served as an excuse for the market downturn, and concerns about AI infrastructure investment had a greater impact on market sentiment. This concern was particularly pronounced in the memory semiconductor sector.

Market experts point out that semiconductor stocks did not rebound despite falling interest rates, interpreting this as a sign that factors other than interest rates, specifically a contraction in AI-related investment sentiment, might be the core reason. The prevailing opinion is that current market movements cannot be explained solely by interest rates. Consequently, the market's unresponsiveness to falling interest rates suggests that investors lack confidence in the long-term prospects of the AI industry.

The fundamental reason for the sharp rise in US Treasury yields is attributed to the continuous large-scale issuance of Treasury bonds as US government debt approaches $40 trillion. In addition, major Treasury-holding countries like China, Japan, and the UK are selling US Treasuries, leading to a decrease in demand. Investors' demand for higher yields also contributes to upward pressure on interest rates.

Simultaneously, big tech companies are issuing bonds at high interest rates, attracting investment capital towards them. This reduces the relative attractiveness of US Treasuries, further fueling interest rate increases. The market principle of increasing supply and decreasing demand is leading to a sharp rise in interest rates.

Tonight's scheduled 20-year Treasury bond auction results are expected to be a crucial turning point determining the market's direction. If this auction proceeds smoothly, expectations are rising that the sharply increased interest rates may stabilize. Additionally, further market reactions are anticipated based on the content of the FOMC minutes to be released tomorrow.

A September interest rate freeze is virtually certain, but hints about the Fed's future monetary policy direction may be contained in the minutes. Investors are expected to use these two events to ascertain whether interest rate volatility will ease and the Fed's stance, and adjust their positions accordingly.

Analysis suggests that former President Trump is shifting his focus to North Korea issues rather than negotiations with Iran. Trump is likely to prepare incentives such as easing sanctions against North Korea. In this situation, while Iran's isolation is deepening and economic damage is increasing, the possibility of negotiations has not completely disappeared, but the prevailing view is that it should be considered a 'bonus' rather than an immediate expectation.

Experts caution against excessive optimism regarding Iran negotiations, advising that expectations for the Iran issue should be lowered as Trump's diplomatic priorities have shifted to North Korea. Relations with Iran carry inherent uncertainties that can change at any time, so the impact on the market is expected to be limited.

Skepticism is being raised about the possibility of a summit between former President Trump and Chairman Kim Jong Un. Analysis suggests that Chairman Kim Jong Un has little need to engage in dialogue with Trump, as he has less reason to negotiate due to his current alliance with Russia and China. Conversely, Trump may pursue a summit by preparing incentives such as easing sanctions against North Korea.

In this situation, the surge in inter-Korean economic cooperation stocks driven by summit expectations is criticized as being akin to a 'gamble'. Experts believe that Chairman Kim Jong Un lacks sufficient incentive for a summit, and Trump's proposals may not differ significantly from the past. Therefore, growing warnings advise caution in investing in inter-Korean economic cooperation stocks.

As the US 10-year Treasury yield approaches 5%, anxiety in the bond market is escalating. Experts view this as a crucial inflection point where a sell-off by 'Bond Vigilantes' could begin. While buyers may re-enter if yields surpass 5%, there are also warnings that yields could rise even further if bond vigilantes engage in mass selling.

Tonight's scheduled 20-year Treasury issuance results are drawing attention as a key factor that will determine the direction of this bond market. Depending on the auction results, yields are expected to either rise further or find stability. Investors are closely watching the symbolic 5% mark and monitoring market reactions.

Greg Brockman, co-founder of OpenAI, emphasized that AI applications are expanding from software and cybersecurity to science, biology, and materials. He defined computing demand as experiencing a structural explosion, stating that computing power will be the 'new oil' of the AI era. This explosive increase in demand is leading to rapid annual revenue growth for major AI companies like Anthropic and OpenAI.

This indicates that AI technology development is not limited to specific industries but will expand across the board. As the importance of computing resources grows, investment in related infrastructure will accelerate, which is expected to provide enormous growth opportunities for related industries, including semiconductors.

As the number of users of AI models like Claude surges, the problem of infrastructure shortages is intensifying. Anthropic extended the 50% increase in Claude's weekly usage limit until August 30th, demonstrating the difficulty of providing services due to insufficient infrastructure. Users are unable to receive normal services because there are not enough data centers available.

This issue is a primary reason why big tech companies are accelerating data center investments. There is growing recognition that infrastructure expansion is essential for stable service provision in line with the development of AI technology and the expansion of its applications. The phenomenon of computing demand exceeding supply is expected to continue for some time.

Demand for memory semiconductors is surging with the growth of the inference AI market, and in the latest data center designs, the proportion of memory is expected to exceed 50%. This signifies that memory semiconductors are moving beyond the perception of being a cyclical industry to become a core component of the inference AI market. This structural change is analyzed as a major cause of rising memory prices.

As memory becomes an essential element in the AI era, the growth of related companies is expected to accelerate further. Companies with high-performance memory technology, in particular, are anticipated to benefit significantly, and this is interpreted as a critical change that could reshape the entire semiconductor industry.

Criticism has been raised that Samsung Electronics and SK Hynix's shareholder return policies are inadequate compared to competitors (SanDisk, Kioxia). This is attributed to the capital-intensive nature of the memory business and the burden of massive investment costs. The market believes that Samsung or Hynix can implement strong shareholder return policies when they are confident in consistently generating profits.

Therefore, the current absence of shareholder returns is causing the market to doubt one-time earnings increases. While there is an expectation for more proactive shareholder return policies if there is confidence in sustained profit generation, such movements have not yet appeared, leading to continued investor concerns.

It has been argued that the recent controversy surrounding 4,200 trillion won in debt for nine big tech companies is far from reality. This 'debt' includes unstated leases (rental agreements) and long-term purchase agreements, which experts criticized as unreasonable to classify as immediate debt. They explained that it merely represents future long-term contract volumes, money that will be spent one or two years from now, being portrayed as hidden debt.

Long-term purchase agreements are, by definition, long-term reservation contracts of five years or more, and recognizing them as current debt is an accounting error. Companies make these strategic choices to forecast future production and secure stable supply chains, and interpreting them as immediate debt can mislead the market.

The downturn in July was primarily caused by the collapse of hedge funds and uncertainty regarding AI earnings. At that time, overall market anxiety was high due to unconfirmed earnings from AI-related companies. However, the situation has completely changed. With earnings confirmed for big tech companies as well as small and medium-sized data centers, the growth of the AI-related industry is materializing.

This earnings confirmation is a crucial factor in restoring market confidence and ensuring downside resilience. Experts point out that rising long-term interest rates are merely an excuse for the current market downturn, emphasizing that the nature of AI concerns in July and now are completely different. The market is now operating on a solid foundation of earnings, according to analysis.

One of the main reasons for the market plunge in July was the large-scale liquidation of hedge fund holdings. At that time, hedge funds significantly reduced their positions due to unexpected market volatility, placing a heavy burden on the market. However, currently, most of these hedge fund holdings have been cleared out, and the market remains more robust than before.

With confirmed earnings and the activation of shareholder return policies, the market has gained a more stable foundation. Unlike the decline in July, the current market is considered to have stronger resistance to external shocks. The resolution of the hedge fund's selling pressure is a significant difference in the current market.

The fact that Samsung Electronics and SK Hynix are generating monopolistic profits in the memory market is emphasized. Shareholder return policies are expected to be an important criterion to prove that these profits are not a temporary phenomenon but will occur continuously. Proactive shareholder returns can serve as an essential condition to attract foreign buying.

The scale of returns to shareholders by these companies, which hold leadership in the memory industry, is directly linked to the long-term outlook for the memory market. Continuous shareholder returns will be an indicator of corporate confidence and an opportunity to assure investors of stable profit-generating capabilities.

Analysis suggests that market upturns must be preceded by the movement of semiconductor leading stocks before spreading to other sectors. In other words, for sectors like robotics and energy, which still have uncertain profitability, to follow, profitable semiconductor companies must first show an upward trend. It is a common pattern for the market to spread buying power across all sectors once profitable ones move first.

Therefore, if semiconductors cannot lead the market, the rise of other sectors like robotics or energy alone would be a rise without substance, according to warnings. The logical sequence of market ascent emphasizes that only after memory semiconductors move first will buying interest spread to various industries such as robotics and energy. This implies that the ascent of other industries without semiconductors cannot be sustained.