- Hedge funds are pouring into South Korea’s semiconductor sector, seeing them as undervalued in the expanding AI technology market.
- Hynix, considered the “queen” in AI for its leadership in supplying high bandwidth memory to Nvidia, presents an attractive investment proposition with a lower price-to-earnings ratio compared to TSMC despite its strong revenue potential.
OUR TAKE
The South Korean semiconductor sector, led by giants like Samsung and Hynix, is witnessing robust growth, fueled by global demand for advanced memory solutions and a tightening supply chain. This scenario is expected to create opportunities in related industries and contribute to the broader economic landscape, bolstered by geopolitical dynamics and the evolving AI ecosystem.
–Vicky Wu, BTW reporter
What happened
Hedge funds are pouring into South Korea’s semiconductor sector, particularly targeting giants like SK Hynix and Samsung Electronics, seeing them as undervalued in the expanding AI technology market. Influential funds, including the UK’s Man Group, Singapore’s FengHe Fund Management, and Hong Kong’s CloudAlpha Capital Management and East Eagle Asset Management, are capitalising on the growing demand for advanced memory chips and favorable government policies.
FengHe’s CIO, Matt Hu, positions Hynix as the ‘queen’ of AI, next to Nvidia, whose stock tripled, hitting a $3 trillion valuation. While Nvidia has seen a surge, Hynix and others haven′t matched the performance of major Asian AI players like Taiwan Semiconductor Manufacturing Company (TSMC). Now, focus shifts to South Korean chipmakers, as tech firms seek high−band width memory (HBM) chips, predominantly made by Hynix, Samsung, and Micron Technology. Hynix leads in supplying advanced HBM to Nvidia, deriving more revenue from it than TSMC, yet trading at a lower 9 times forward earnings ratio versus TSMC′s 23 times. South Korea′s government is also boosting the chip industry with a $19 billion package and a Corporate “Value-up Programme”.
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Why it’s important
South Korea’s semiconductor titans, Samsung and Hynix, have significantly propelled the KOSPI index this year, with Hynix’s shares soaring over 70% and Samsung’s climbing 12%, against a backdrop of a 9% overall KOSPI increase. A global shortage in memory chips, exacerbated by heightened demand for HBM chips, has bolstered South Korean suppliers, notably Samsung, which forecasts a 15-fold increase in second-quarter profits due to surging chip prices.
Simon Woo, the Asia-Pacific technology research coordinator at BofA Securities, highlights that South Korea has the potential to increase sales of semiconductor equipment, cooling systems, and consumer electronics alongside the burgeoning AI ecosystem.
The AI narrative in South Korea extends beyond chip manufacturers. Chris Wang, a portfolio manager at tech-centric CloudAlpha Capital Management, has taken a position in HD Hyundai Electric this year, predicting the company will benefit from the surge in electricity demand. Since January, the firm’s shares have escalated by 333%.
Moreover, the ongoing tech rivalry between the U.S. and China ensures that China will continue to rely on South Korea’s advanced memory chips, as Chinese chipmakers have not been able to match the quality while under U.S. export restrictions.
