Kim Hak-gyun, Research Center Director at Shinhan Securities, stated that the recent decline in Korean semiconductor stocks resembles a similar market correction one year ago during the AI industry's transition from the 'learning' phase to the 'inference' phase. The KOSPI has experienced daily volatility exceeding 5% recently, prompting increased panic selling among retail investors. Kim attributed the current downturn to three factors mirroring last year's first quarter: technology transition uncertainty as NVIDIA shifts chip generations, rising US interest rates, and competitive pressure from Chinese AI models. One year ago during a comparable technology inflection point, the NASDAQ fell 26.8%, NVIDIA declined 43.4%, and SK Hynix dropped 28.3%. Kim advised investors to focus on corporate fundamentals rather than short-term price movements, stating that while investor concerns are legitimate, the AI growth narrative remains intact and betting against it offers limited practical benefit.
Year-Ago Market Correction Mirrored Current Semiconductor Decline
Kim drew parallels between the current market environment and conditions one year prior when AI technology transitioned from the 'learning' phase dominated by training models to the 'inference' phase focused on practical application. During last year's first quarter, the NASDAQ fell 26.8%, NVIDIA declined 43.4%, and SK Hynix dropped 28.3% as NVIDIA transitioned from its H200 chip to the Blackwell generation. Kim noted that NVIDIA is currently transitioning from Blackwell to its Verarubin chip as the industry moves toward agentic AI, creating similar uncertainty. He stated that external conditions also parallel the earlier period, with the Trump administration signaling tariff increases and rising interest rates in both timeframes. Chinese AI model releases - DeepSeek last year and GLM recently - contributed to market volatility in both periods. Kim noted that Korean memory semiconductor stocks have risen more sharply relative to US Magnificent 7 stocks compared to the prior cycle, intensifying current concerns about SK Hynix's 70% operating profit margins and hyperscaler data center capital expenditure sustainability.
Samsung Electronics and SK Hynix Trading Below 6x Current-Year Earnings
Kim stated that Samsung Electronics and SK Hynix are trading at price-to-earnings ratios below 6x based on current-year earnings estimates and 4x based on next-year estimates. He noted that while these valuations appear inexpensive numerically, investors harbor fears rooted in past cyclical downturns when earnings collapsed by 90%, potentially making a 4x multiple equivalent to 40x if profits decline sharply. Kim distinguished current conditions from past cycles by highlighting the increased prevalence of long-term fixed supply contracts, which he stated reduce the risk of sharp operating profit declines even if contracted prices are slightly below short-term spot market rates. He identified earnings estimate consensus as the primary indicator to monitor, stating that a downward revision would represent a genuine inflection point. Kim referenced Oracle's capital expenditure increase announcement in June and semiconductor export indicators through July 10 as evidence that the fundamental narrative has not deteriorated significantly within one month.
US Treasury Yield Threshold Set at 4.6-4.7% With 5% Representing Major Risk
Kim stated that US Federal Reserve interest rates significantly impact the Korean stock market and affect hyperscaler companies' funding costs for AI chip purchases. He noted that while these companies previously funded chip acquisitions from operating cash flow, they now issue corporate bonds for financing. Kim cited Amazon's recent corporate bond issuance receiving a cooler reception than Google's 100-year bond offering due to rising US Treasury yields. He stated that annual interest rate increases appear unlikely, noting that US GDP consensus estimates declined from 2.5-2.6% at the year's start to current 2% levels and inflation pressures are easing. Kim specified that investors should monitor whether US Treasury yields remain at the 4.6-4.7% range in the near term, stating that a rise to 5% would create significant market disruption and burden the entire equity asset class.
Kim Recommends Against Leverage and Advises Passive Index ETF Allocation
Kim advised against leverage trading, stating that leveraged positions encourage short-term trading that prevents investors from benefiting from long-term upward trends. He referenced Samsung Electronics' price movement from 100,000 won expectations in 2021 declining to 50,000 won before ultimately reaching 300,000 won, illustrating that patient investors receive compensation even after purchasing at unfavorable prices. Kim stated that leverage trading amplifies losses and reduces capital durability through negative compounding effects. He recommended that investors lacking detailed corporate knowledge allocate at least one-third of their equity portfolio to passive index ETFs diversified across the entire market rather than concentrated in specific sectors. Kim noted that in the first half of this year, 1,800 out of approximately 2,500 domestic listed stocks declined, and that in the US market over the long term, the top 4% of stocks carried index performance while the remaining 96% underperformed Treasury bond yields, demonstrating the difficulty of outperforming market benchmarks.
FAQ
What caused the recent decline in Korean semiconductor stocks according to Kim Hak-gyun?
Kim Hak-gyun stated that three factors drove the recent decline: AI technology transition uncertainty as NVIDIA shifts chip generations from Blackwell to Verarubin, rising US interest rates, and competitive pressure from Chinese AI models like GLM. He noted these conditions mirror the market correction one year ago when the NASDAQ fell 26.8%, NVIDIA declined 43.4%, and SK Hynix dropped 28.3%.
What valuation levels are Samsung Electronics and SK Hynix currently trading at?
Kim stated that Samsung Electronics and SK Hynix are trading at price-to-earnings ratios below 6x based on current-year earnings estimates and 4x based on next-year earnings estimates. He noted that while these appear inexpensive, the primary indicator to monitor is whether earnings estimate consensus begins declining, which would represent a genuine market inflection point.
What US Treasury yield level does Kim identify as a significant risk threshold?
Kim stated that investors should monitor whether US Treasury yields remain at the 4.6-4.7% range in the near term. He specified that if yields rise to 5%, it would create significant market disruption and burden the entire equity asset class, though he noted that annual interest rate increases appear unlikely given declining US GDP consensus estimates and easing inflation pressures.
