Peak or supercycle? Chip outlook faces crucial test

Samsung Electronics and SK hynix face a critical test as investors debate whether the memory chip boom is peaking or entering an AI-driven supercycle, with upcoming earnings from ASML, TSMC, and big tech firms expected to shape the outlook. The Bank of Korea supports the bullish view, citing rising AI infrastructure demand and slow supply expansion, but peak-cycle concerns persist despite record earnings, contributing to a sharp selloff in Korean chip stocks.

ASML, TSMC, big tech earnings in coming weeks could determine whether Samsung, SK hynix can extend AI-driven memory boom Samsung Electronics and SK hynix are entering a critical stretch as investors split over whether the memory boom is nearing a peak or developing into a prolonged AI-driven supercycle. Results from ASML and TSMC this week, followed by big tech firm earnings and capital expenditure plans later this month, are expected to shape the outlook for both Korean chipmakers after a sharp selloff fueled by profit-taking and peak-cycle concerns. The Bank of Korea on Monday backed the more bullish view, saying semiconductor demand was rising faster than supply as global technology companies expanded AI infrastructure. “Semiconductor demand has increased significantly due to AI infrastructure investment, while the pace of supply expansion has remained slow,” the central bank said in a written response to Rep. Park Sung-hoon of ruling Democratic Party. It said the current upturn differed from previous cycles because competitive AI investment was driving structural demand, while advanced chips such as high-bandwidth memory required longer development and production periods. The BOK expects the global chip industry to remain in expansion “for a considerable period.” The current upturn has lasted 40 months since March 2023, exceeding the 29-month average of five expansion cycles between 2000 and 2020. Still, peak-cycle concerns have mounted even as chipmakers post record earnings and memory prices remain elevated. Samsung’s record second-quarter results underscored the strength of the upturn but did little to ease fears that earnings growth may have reached its fastest pace. Investors are increasingly focused on whether memory price gains and profit estimate upgrades can continue, weighing on both Samsung and SK hynix shares despite strong fundamentals. As of Monday afternoon, the Kospi dropped below the psychologically important 7,000 mark, sliding to 6,793.25 as of 2:30 p.m., as a circuit breaker halted trading amid marketwide panic. SK hynix plunged 14.5 percent below 1.9 million won $1,260 , while Samsung fell as much as 10.53 percent to 255,000 won on Monday afternoon. SK hynix’s strong Nasdaq debut offered some support. Its US depositary shares closed 12.8 percent above the offer price, at a premium to the Seoul-listed stock, though analysts said the listing provided limited evidence on whether the memory cycle had further to run. “The ADR listing does not necessarily signal a change in the memory cycle, but it could help revive the sentiment toward semiconductors and the broader Kospi,” said Han Ji-young, an analyst at Kiwoom Securities. Yang Ji-hwan, head of research at Daishin Securities, said the chip industry is in the early to middle stage of an upcycle. "AI is changing the nature of memory supply and demand, and an extreme imbalance will drive further price gains and earnings growth," Yang said. Analysts also say the next several weeks are likely to determine whether investors return to the AI supercycle thesis or continue to price in a peak in memory earnings. ASML and TSMC will provide the first major signals this week through their orders, capital spending plans and demand outlook. Their guidance will offer an early indication of whether leading chipmakers and foundries still expect AI-related investment to remain strong. The more decisive test will come later this month from Microsoft, Alphabet, Amazon and Meta. Their earnings and capital expenditure plans will show whether spending on AI servers, data centers, HBM and advanced processors remains intact. “Chip stocks are likely to trade in a broad range for some time before attempting another advance,” said Na Jeong-hwan, an analyst at NH Investment & Securities. “A sustained rebound will require further earnings upgrades and evidence that AI demand remains strong and Big Tech continues to expand capital spending." The two Korean chipmakers may respond differently to those signals. Samsung has greater exposure to conventional DRAM and NAND, while SK hynix remains the purer bet on HBM and AI accelerators. herim@heraldcorp.com