Goldman Sachs recently published a research report stating that the fundamentals of South Korea's memory chip sector remain robust, but investors' list of concerns is growing longer.
The report indicated that over the past few weeks, the Goldman Sachs team held approximately 60 meetings and phone calls with investors to discuss the investment outlook for the South Korean technology sector. Overall, investors remain optimistic about the memory industry, but have shown a marked increase in their focus on several potential downside risks.
Investors generally maintain a bullish stance on the memory sector, with AI demand still seen as a key support. The report stated that, among all topics discussed, the memory industry remains the core focus for investors. Most believe current industry fundamentals are still solid, particularly the continued rise in memory prices and improving profitability, which are sustaining a positive market sentiment.
However, compared to a few months ago, questions regarding potential risks have increased significantly. Primary concerns include: a possible slowdown in AI capital expenditure, potential declines in smartphone and PC demand, aggressive capacity expansion by memory manufacturers leading to increased supply, a potential pullback in spot memory prices, and the possibility that the rate of memory price increases may start to slow from the second quarter of 2026.
Despite this, most investors still believe the industry's fundamentals remain healthy, at least in the medium term. Goldman Sachs noted that even if some of these risks materialize, the majority of investors are inclined to continue holding memory stocks, and might even increase their positions during any market pullback.
The factor most likely to shift market sentiment would be a significant decline in AI capital expenditure. If this occurs, investors broadly believe a substantial correction could affect stocks across the entire technology supply chain.
The memory price uptrend cycle could potentially last until 2027. The report mentioned that in most meetings, one of the key questions from investors was the magnitude and duration of the current memory price increases.
Investors generally believe that memory prices are likely to continue rising for at least the remainder of this year, and potentially through to 2027. Furthermore, due to persistently tight industry supply, near-term price expectations could still be revised upwards.
Overall, investor concern about NAND supply is notably higher than for DRAM, primarily due to NAND's relatively lower technical barriers.
Strong HBM demand could lead to higher pricing. In the area of High Bandwidth Memory, investors are focused on the demand outlook and competitive landscape for HBM3E and HBM4.
Because HBM4 requires higher pin speeds and presents greater technical challenges, the market is monitoring the progress of various companies in advancing their technologies. If mass production of HBM4 proves difficult, it could further tighten supply and demand, thereby supporting price increases for HBM.
Many investors believe memory manufacturers might leverage several factors to secure higher prices: strong HBM demand, continued tight supply and demand for conventional DRAM, and the challenges associated with ramping up HBM4 production.
Memory capital expenditure may exceed market expectations. Capital expenditure is also a key focus for investors.
According to the report, given the tight supply-demand conditions in the three major areas of DRAM, NAND, and HBM, many investors believe future capital expenditure in the memory sector could be higher than current market consensus.
A shift is also occurring in investors' preferred valuation metrics. An increasing number are focusing more on Price-to-Earnings valuation rather than the traditionally more common Price-to-Book ratio. This shift reflects significantly strengthened confidence in the sustainability of memory companies' profitability.
Analysis suggests this confidence stems from two main sources: structural demand growth driven by AI, and more disciplined supply expansion within the industry. Additionally, an increase in Long-Term Agreements could reduce the significant demand volatility seen in past cycles.
Samsung Electronics garners increased attention. On an individual stock level, the report indicated investors hold positive views on both Samsung Electronics and SK Hynix overall, without a clear preference for one over the other.
However, compared to a few months ago, more investors have become marginally more positive on Samsung Electronics. This is primarily due to its larger exposure to the traditional memory market, stronger short-term fundamentals, and the company's progress in HBM4 technology.
Simultaneously, investors still generally believe that SK Hynix will maintain its leading market share in HBM over the coming years. Furthermore, if the company pursues an ADR listing in the future, it could also benefit its valuation.
Goldman Sachs pointed out that both companies are likely to generate substantial free cash flow going forward, and the potential for enhanced shareholder returns is another key reason for continued investor optimism.
Among non-memory companies, Samsung Electro-Mechanics attracts the most interest. Among non-memory companies, Samsung Electro-Mechanics received the most attention. The report suggested this might be related to its significant stock price surge in February—gaining over 60% during the month, compared to a roughly 20% rise in the KOSPI index.
Investors are focused on two main factors: the potential for MLCC prices to enter a new upward cycle, and growth opportunities in its ABF substrate business driven by AI server demand and new customers.
For LG Electronics, investors are primarily interested in the development potential of its robotics business and whether this segment can contribute to earnings and valuation growth. The market is also watching the profitability outlook for its home appliance and TV businesses against a backdrop of rising costs.
For LG Display, discussion centers on the demand outlook for OLED in end markets like TVs, smartphones, and IT devices, as well as the competitive landscape.
Regarding LG Innotek, investors are focused on the potential risks from rising memory costs, given the company's significant exposure to the smartphone camera module business. Progress in its substrate businesses, such as ABF, is also a key area of market focus.
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