This illustrates the situation where high interest rates are weighing on semiconductor stock prices amid ongoing demand for AI data centers and semiconductors. It symbolizes the analysis that Samsung Electronics is more sensitive to foreign investor flows, while SK Hynix is more sensitive to supply and demand and AI valuation burdens. [Image=Hanmiilbo]

Samsung Electronics Faces Supply/Demand Issues, SK Hynix Grapples with Supply/Demand and Valuation

Last week's semiconductor market checkpoints included whether the sharp decline in U.S. semiconductor stocks signified a slowdown in AI demand, whether SpaceX's Initial Public Offering (IPO) would be a temporary supply-demand shock, and what differences rising U.S. interest rates would create for Samsung Electronics and SK Hynix.

The Philadelphia Semiconductor Index (SOX) plummeted by 10.3% on June 5th alone. Micron fell 13.3%, Marvell Technology dropped 16.7%, and Broadcom declined 7.9%.

However, the Philadelphia Semiconductor Index rose 7.9% by the 12th, with Micron, Intel, and semiconductor equipment stocks staging a sharp rebound thereafter. AI semiconductor demand did not disappear and reappear within a few days. Rather, the multiples applied to the same growth outlook changed due to interest rates and supply/demand dynamics.

This week, the market began to evaluate the AI industry not as a monolithic entity.

Micron and semiconductor equipment stocks rose on expectations of benefiting from increased AI data center demand. Conversely, Oracle fell over 8% despite strong earnings due to the burden of massive capital expenditures and bond issuance.

This marked a divergence in stock prices between companies investing in AI and those whose revenue is derived from AI investments.

When major tech companies expand their data centers, semiconductor companies see increased orders. However, for companies raising investment capital, interest rates and financing costs become a burden. As interest rates rise, the ability to raise funds and the timing of monetization become more critical than the scale of AI investment.

South Korea's Samsung Electronics and SK Hynix, while both categorized as semiconductor stocks, exhibit different sensitivities to interest rates.

Samsung Electronics has a diversified business portfolio beyond semiconductors, including smartphones, home appliances, and displays. Its cash-generating ability and financial stability are also relatively high. Even with rising interest rates, the impact of increased borrowing costs on the company's overall performance is limited.

A more direct issue for Samsung Electronics is foreign investor flows. Samsung Electronics holds a significant weighting in the KOSPI and has a large proportion of foreign ownership. When U.S. Treasury yields rise and the Korean won weakens, foreign investors can quickly reduce their holdings in Korean stocks, with Samsung Electronics being a primary target for such sales.

Therefore, rising interest rates primarily act as a negative factor for Samsung Electronics through foreign investor sentiment.

SK Hynix is more sensitive to interest rates than Samsung Electronics. This is because expectations for growth in High Bandwidth Memory (HBM) and AI data centers are strongly reflected in its stock price.

Companies with high future growth expectations are more significantly affected by the discount rates applied when interest rates rise. Even if current earnings remain stable, higher interest rates reduce the present value of future profits, thereby lowering the fair stock price.

Additionally, concerns arise that rising financing costs for major U.S. tech companies could lead to a slowdown in AI data center investments. Even if semiconductor orders have not actually decreased, investors preemptively reflect the possibility of future demand slowdown in stock prices.

For SK Hynix, rising interest rates act as a double blow: a negative for foreign investor sentiment and a detriment to its AI growth stock valuation. For the same interest rate shock, SK Hynix is likely to experience greater price drops and volatility than Samsung Electronics.

Conversely, if U.S. Treasury yields stabilize and AI investment prospects remain positive, SK Hynix's rebound speed and magnitude of increase could also be greater than Samsung Electronics. High interest rate sensitivity implies that both the extent of declines and increases will be significant.

The conclusion from Stock Radar this week is that the market has not negated AI semiconductor demand but has begun to scrutinize which companies can bear the investment costs and generate actual profits in a high-interest-rate environment.

When forecasting the stock prices of Samsung Electronics and SK Hynix, one should not solely focus on memory prices and HBM demand. It is crucial to concurrently monitor U.S. 10-year Treasury yields, the won-dollar exchange rate, and foreign investor flows.

Next Week's Checkpoints

We need to observe whether U.S. 10-year Treasury yields stabilize below 4.5%, if the rebound in the U.S. semiconductor index continues, and if there is consecutive foreign investor buying in Samsung Electronics and SK Hynix.