Memory Investors, What Should You Watch Now?

Samsung Electronics' revenue in the last quarter increased approximately 14% compared to the previous quarter, while operating profit rose 20%, surpassing an operating profit margin of 50%.

However, market expectations had already formed around 107 trillion won before the earnings announcement, so the actual reported results did not surprise investors.

A market starved for liquidity due to peak interest rates and increased corporate bond issuance faces a phase where existing leaders plummet when new leaders emerge. Over the past year, memory semiconductors, which led the market, now face the risk of losing their leadership position as capital flows to AI service companies and others.

When new leaders emerge, memory semiconductors—the previous leaders—show downward trends, and the current peak interest rates and increased corporate bond issuance accelerate this shift.

With the market narrowing, memory semiconductors, the former leaders, have entered a phase of significant damage, analysts say.

Cost-performance and price competitiveness drive market demand, with surging ESS (energy storage system) demand in particular leading battery industry growth.

This suggests that despite structural increases in battery demand, overall industry movements are determined by price volatility.

Expert Lee Hyuk-jin forecasts differences in stock price movements between Samsung Electronics and SK Hynix.

SK Hynix's Solidigm IPO appears to offer no special advantage to general shareholders, but Samsung Electronics is expected to expand HBM market share and narrow the gap next year.

This raises the possibility of differential returns between the two companies as valuation differences narrow.

During this period, retail investor caution and institutional investor profit-taking converge, making it difficult for large capital to flow into the market.

Experts point to the need to resolve these institutional supply-and-demand constraints through tax law reforms such as U.S.-style short-term capital gains taxes and long-term investment incentives.

The surge in AI investment serves as a key driver of deepening K-shaped economy dynamics and increased government bond issuance.

If AI investment scales shrink, non-AI sectors currently suffering may normalize.

Similar to past U.S. rebounds in cosmetics and healthcare, Korea may see comparable trends reflected with a time lag.

As a hedge against possible memory price declines from falling AI hardware demand, the substrate industry emerges as an attractive neutral investment alternative.

Substrates absorb both AI-specific and general-purpose demand.

Therefore, substrate-related stocks can serve as a stable portfolio alternative for investors hesitant about investing in oversold stocks.

Samsung Electronics preferred shares support the stock price floor with higher dividend yields compared to common shares. Supply dynamics aimed at narrowing the historically widened spread, combined with expectations for strengthened shareholder return policies, are cited as response strategies for memory investors.

There is mechanical supply potential to narrow the historically widened spread, and expectations exist for strengthened shareholder return policies.

Additionally, the higher dividend yield of preferred shares compared to common shares is expected to support the stock price floor.

Considering the cyclical nature of the memory industry, a PBR of 1x has been regarded as the floor and 2x as the peak.

However, as HBM's high-bandwidth memory proportion expands unlike general semiconductors, analysts find it unconvincing that Samsung Electronics would fall to a PBR below 1.5x by 2028 when HBM revenue approaches 50%.

This reflects expectations that HBM's growth potential will support the stock price floor.

With memory supply oversupply questioned through 2028, if first-quarter HBM mass production can defend general-purpose semiconductor price declines, it suggests a PBR 2x target. If general-purpose semiconductor price declines halt, stock prices could reach a PBR of 2x again.

Expert Heo Jae-moo explains that if general-purpose semiconductor price declines stop, stock prices have the potential to return to a PBR of 2x.

Currently, market skepticism focuses on 2028 memory supply oversupply, with attention on whether HBM's influence can offset this variable.

With semiconductor front-end self-sufficiency at only 10% by nation, hyperscaler investments are expected to continue regardless of interest rates. Unlike the turbulent downstream market, the upstream supply chain sector receives high marks for earnings sustainability.

Global firms like Applied Materials and Lam Research effectively function as ETFs, with domestic supply chain companies' earnings improvements expected to follow these leaders improving first.

Since hyperscalers cannot stop investing regardless of long-term rates, the downstream supply chain sector commands higher earnings sustainability credibility than the upstream industry.

Approximately 70% of data center plans are concentrated in Texas, so the Texas gubernatorial election results will significantly influence the AI industry.

Should a blue wave occur (Democratic victory), AI capex investment may slow, in which case attention should shift to countercyclical industries like healthcare and solar.

Persistent high interest rates are pushing up auto lease rates and reducing purchasing power, threatening the automobile market—the most expensive consumer good.

Gasoline vehicles in particular face mechanically degrading price competitiveness due to low-cost electric vehicle penetration.

Chinese electric vehicle makers like BYD are rapidly penetrating commercial and taxi markets with aggressive low-price tactics, while auto component suppliers' slim operating margins of 2–4% worsen this crisis.

With ESS revenue expected to surpass electric vehicles, investors should target ESS-focused companies with over 50% solar and grid-facing installation growth.

Through July, solar and grid-facing ESS installation rates increased over 50%, with CATL's earnings per share rising thanks to ESS business while BYD's, dependent on automobiles, fell.

ESS revenue may surpass electric vehicles starting next year, and the cost competitiveness of ESS—cheaper than gas turbines—is expanding, supporting this recommendation.

The Korean market is likely to see a rebound lag versus the U.S. due to major shareholder transfer tax avoidance volumes in October and November.

Should oil prices fall below $79, disinflationary effects are expected in early next year, which could positively impact domestic market rebound.

The difficulty retail investors face with AI and algorithmic trading also supports the case for such tax reforms.