Warning Against 'Historical Low PER' Investments: Why Big Tech ROI Concerns Are Rising

Securities firms are advising caution against increasing holdings in semiconductor giants Samsung Electronics and SK Hynix, despite their valuations—the stock price relative to earnings—dropping to historical lows following recent sharp declines in share prices.

Analysts suggest that a low price-to-earnings ratio (PER) does not necessarily signal undervaluation, even as profit forecasts rise steeply due to the AI-driven memory supercycle.

A report from LS Securities noted that the recent decline in share prices for Samsung Electronics and SK Hynix, coupled with upward revisions in earnings forecasts, has pushed their 12-month forward PERs to historical lows of 4.8x and 5.3x, respectively.

The report stated, "While the valuation merit may appear significant, it is insufficient as a basis for further increasing weightings, considering the unique discount structure of AI cycle leaders and valuation errors that occur during periods of rapid earnings revaluation."

The argument is that while the PER is indeed historically low, AI semiconductor stocks tend to have lower PERs by nature, and the recent figures have been artificially suppressed by the rapid upward revision of expected earnings.

Currently, AI-leading big tech companies such as Alphabet and Meta are facing a dual challenge: they must continue to expand capital expenditures while simultaneously lowering technology costs to remain within the cycle.

The report warns that as this AI investment competition intensifies, memory manufacturers are forced to keep increasing production. This could eventually lead to oversupply, making it risky to invest under the assumption that the current AI boom will last forever.

Furthermore, the report cautioned that if the profits of intermediate AI component companies expand excessively, the return on investment (ROI) for big tech firms could deteriorate, potentially undermining the sustainability of their investments.

The report emphasized, "The operating profits of Samsung Electronics and SK Hynix have surged to 57% of big tech capital expenditures, a level higher than the past bottleneck seen with Nvidia."

It also pointed out that if memory bottlenecks intensify and device costs continue to rise, the pace of AI adoption could fundamentally slow down.

The report analyzed that the current low PER is not a signal of undervaluation, but rather a reflection of the market anticipating future supply expansion and a slowdown in profitability, as investors question how long the current high margins can be sustained.

It added that companies like Meta, Alphabet, Amazon, and Nvidia also experienced phenomena where low PERs were maintained during periods when their earnings were improving rapidly.

Reported by Kim Minjeong | Video by Na Hong-hee | Graphics by Yang Hye-min | Produced by SBS Digital News
※ Please note: This article was translated by AI and may contain errors.