Uncertainty continues to hang over South Korea's semiconductor sector, which has swung sharply on doubts about the profitability of artificial intelligence investment. Analysts said the recent concerns are overdone, noting that operating profit at domestic chipmakers is projected to rise about 50% next year and that the major U.S. technology companies driving AI spending have ample financial capacity to absorb large outlays. In other words, they said, the chance of a broad slowdown in the memory cycle is limited despite the debate over AI returns. For chip stocks to stage a sustained rebound, however, the recovery must spread beyond high-bandwidth memory (HBM) to the broader commodity memory market, they said. Events that help gauge the growth potential of the AI industry, such as an initial public offering by Anthropic, and a continued expansion in Big Tech capital spending also need to follow.
The KOSPI closed at 5,638.34 on the 27th, up 168.87 points, or 3.09%, from the previous session, according to the Korea Exchange. Lifted by the Anthropic news, Samsung Electronics (005930.KS) ended at 222,000 won, up 4.23%, while SK hynix (000660.KS) rose 5.18% to 1,341,000 won.
Even with the rebound, brokerages pointed to the profitability of global Big Tech's AI investment as the key variable determining whether the gains hold. If spending that exceeds cash generation leads to weaker profitability and scaled-back investment, earnings and investor sentiment at Korean chipmakers could deteriorate at the same time, widening volatility in the stock market, they said. From that perspective, analysts stressed that the financial health of technology companies should be assessed separately by company size and funding structure. Risk could be concentrated at firms that have expanded AI investment through borrowing rather than internally generated cash, while the major large-cap players still have plenty of room to spend, they said.
Samsung Electronics and SK hynix are also expected to face limited direct impact because their main customers are large technology companies with solid balance sheets. In a stress test conducted by Hana Securities, total interest costs on debt at major Big Tech firms stayed below 5% of operating cash flow even if government bond yields rose to 6% or 7%.
"Based on bonds issued since last year, interest costs at Big Tech firms amount to only 2% to 3% of operating cash flow, and total interest costs on debt at Google and Amazon are below 5%, so they have ample capacity to keep investing even if rates rise," said Hwang Seung-taek, head of the research center at Hana Securities. He noted that Oracle managed interest costs equal to about 20% of operating cash flow in 2023, indicating that the financial burden on major technology firms is manageable and that most are expected to swing to positive free cash flow (FCF) after 2028.
Some analysts also argued that AI investment should not be measured against the same yardstick as spending on conventional information technology products. "This AI cycle is not a question of purchasing or utility but a question of survival driven by investment," said Kim Sun-woo, an analyst at Meritz Securities (008560.KS). "We are seeing reverse price elasticity of demand, where the more expensive it gets, the more they buy." He meant that demand to keep investing and secure volumes remains strong even as memory prices rise, as buyers try not to fall behind in the competition.
Rapid profit growth and low price-to-earnings ratios (PER) at Korean chipmakers are also cited as reasons to be wary of excessive pessimism about the industry. According to KB Securities, operating profit at Samsung Electronics and SK hynix is forecast at 555 trillion won and 389 trillion won, respectively, next year, up 51% and 50% from this year. Their combined operating profit for this year and next is estimated to reach 1,571 trillion won.
Earnings visibility is also seen as high, given estimates that 70% to 80% of Samsung Electronics' planned memory output for next year has effectively been secured through five-year long-term supply contracts with global technology companies. Despite that profit growth outlook, the PER at both companies has fallen to around 3 times, which some analysts said leaves room for a re-rating of their shares if earnings improvement is confirmed. It is difficult to conclude that the fundamentals of Korean chipmakers have been damaged solely because of the debate over AI investment returns, they said.
Brokerages advised watching foreign fund flows and the movement of leveraged investment money, in addition to the scale of Big Tech spending, as short-term variables. Analysts said selling pressure from foreign investors, who have been net sellers in recent sessions, appears to have passed its peak, and that flows could stabilize as early as next month. Still, if global investors continue to cut leverage, additional selling unrelated to corporate earnings could emerge.
Ultimately, whether the rebound in chip stocks continues depends on whether the higher earnings expectations translate into actual profits and whether Big Tech maintains its push to expand AI investment, analysts said. "This is a phase in which scrutiny is intensifying over whether expanded AI investment can be connected to actual revenue and cash flow," said Kang Jin-hyuk, a senior analyst at Shinhan Securities (008670.KS). "Whether Big Tech's growing AI capital expenditure converts into sustainable profit will determine the next direction for the Korean semiconductor cycle and share prices."