Where Is the Peak of the Semiconductor Rally? Stock Market Enters Lean Times

Was the expectation that solid earnings would quiet down volatility too high? Despite Samsung Electronics' "de facto surprise" second-quarter operating profit, the Kospi surrendered the 8,000 level, and the "300,000-won Electronics" milestone also collapsed. While retail investors stepped up to buy again on Wednesday, foreign investors sold off massive volumes of Korean semiconductor stocks, further intensifying anxiety. Samsung Electronics' stock price plummeted over 10% during intraday trading before closing down 6.92% at 296,000 won. SK Hynix also fell as much as 11.22% intraday to 2.08 million won before closing down 6.06% at 2.201 million won. With the New York stock market rising overnight and shares of semiconductor companies like Micron gaining, the Kospi's sharp decline on this day was unexpected.

Market participants are facing growing dilemmas. Although the record-breaking performances of South Korea's top two semiconductor giants are said to have been priced in, worrying about a "peak-out" in the semiconductor industry seems premature given that demand remains solid through next year due to long-term contracts. Yet, those concerns are surfacing all too quickly. Ultimately, this summer is expected to be a testing ground—following profit-taking from short-term surges and a period of stock price correction—to see whether the market will enter a second rally in the second half of the year, triggered by the earnings reports of big tech companies running from mid-July to August. Samsung Electronics' preliminary second-quarter operating profit of 89.4 trillion won this year exceeds its combined operating profit over the past three years from 2023 to 2025 (82.9 trillion won). This represents an 1,810% increase compared to the same period last year, comfortably beating securities firms' consensus estimate of 84.5 trillion won. To put this in perspective, the record quarterly operating profits of U.S. giants Nvidia and Apple stand at $53.5 billion (approximately 82 trillion won) and $50.9 billion (approximately 78 trillion won), respectively, making Samsung's performance effectively the largest among global big tech firms. Notably, because this second-quarter result reflects provisions for employee performance bonuses, the figure would reach 106 trillion won if those were excluded.

In fact, while the first-quarter earnings were also an "earning surprise," the stock price fell on the day of the announcement. Analysts first point to a "sell-on-news" phenomenon, where selling occurs despite positive news. Because the stock price had already risen on expectations of strong earnings, profit-taking sentiment driven by the perception that the "catalyst has expired" was strong, particularly among foreign investors. Indeed, some in the securities industry noted, "While the announced figure was slightly better than forecasts, the psychological surprise effect was halved due to vague, high expectations for a 100 trillion won performance." Some also suggest that concerns over the relative sluggishness of the non-memory semiconductor and mobile (DX) divisions, given Samsung Electronics' revenue structure as an integrated IT company, were reflected. Nonetheless, the view that shifting market dynamics surrounding the semiconductor industry are starting to exert a major influence is gaining traction, given the sharp drop in stock prices. This is driven by the relentless selling by foreign investors.
At the onset of the debate over the semiconductor peak, the data that drew attention was TrendForce's DRAM price forecast. Although DRAM supply is expected to remain extremely tight in the third quarter of this year, the rate of price increases is projected to slow to 13% to 18% compared to the previous quarter. This is noticeably lower than the 58% to 63% increase seen in the second quarter. While this represents a natural cooling of price hikes following a surge in demand, it is also tied to the circumstances of consumer electronics companies that use semiconductors, such as smartphone and PC manufacturers. Recently, Apple requested approval from the U.S. government to purchase Chinese memory chips, emphasizing that product price hikes are inevitable due to the burden of semiconductor costs. This move is widely seen as an attempt to keep the dominance of South Korean and other semiconductor giants in check. However, raising the prices of products like smartphones to reflect higher DRAM costs could dampen sales, ultimately leading to a drop in semiconductor demand. Therefore, it is necessary to carefully forecast when major semiconductor-consuming companies will reach their price tolerance limits.

Another piece of news involved Meta. As reports emerged that the hyperscaler, which has been going all-in on AI infrastructure investment, is preparing a strategy to sell some of its data center "computing" resources to external parties, concerns arose that AI infrastructure investment—previously perceived as being in absolute shortage—might actually be in oversupply. Although this was not an official policy announced by Meta, the Bloomberg report caused a larger-than-expected stir. If Meta's AI computing capacity is indeed in surplus as feared, Meta would not need to purchase more AI accelerator chips like Nvidia's GPUs, which would also impact the demand for the semiconductors that go into them. However, reality seems quite different from these concerns.

Leasing data centers is a business that Amazon, Google, and Microsoft are already engaged in. Because massive infrastructure investments constantly prompt questions from shareholders and the market about when these investments will turn a profit, companies use completed facilities to generate revenue through cloud services, thereby mitigating risks. Unlike other hyperscalers, Meta has been building computing infrastructure (data centers) without offering its own cloud services, so this can be seen as a strategy to enter the cloud services market and dispel profitability concerns. Ultimately, the Meta issue, which acted as a major negative factor for the market, appears to be more of a temporary episode. Looking back, Apple's move to purchase Chinese semiconductors may be a warning shot to replace expensive South Korean semiconductor supplies, but it also underscores just how tight the supply of essential semiconductors is, raising questions about whether it is truly a negative development.
In a broader context, these issues, which deviate from the main trend, reflect the dilemmas of AI big tech companies struggling with the burden of massive infrastructure investment costs. In the U.S. industry, media, and administration—where the domestic memory semiconductor production base is weak—there is a growing desire to keep the rapidly rising prices and supply structures of Taiwanese and South Korean DRAM in check, and signs of this are beginning to appear. The domestic stock market faces another watershed moment this week. SK Hynix's ADR listing on the New York Stock Exchange is scheduled for July 10. This does not involve moving SK Hynix's existing Korean shares to the U.S. market. Instead, the company will issue new common shares to be held by a depository, and U.S. investors will buy and sell ADRs (American Depositary Receipts) created based on those shares. Since ADRs are linked to domestic common shares at a certain ratio, their prices move in tandem with domestic common share prices and exchange rate trends.

This can be viewed from two perspectives. ① First, from the standpoint of existing shareholders, this ADR listing carries concerns of "equity dilution" due to the issuance of new shares. The ADR issuance is valued at 42 trillion won, involving about 17 million new shares, which increases the existing share count by about 2%. Consequently, generating sufficient investment demand is essential. The success of the listing can be judged after observing the new valuation and supply-demand dynamics that form in the U.S. market. ② Another key point is that the company will be compared directly in the same market as U.S. semiconductor stocks. Once SK Hynix is traded on the Nasdaq, it will be evaluated alongside memory and storage companies listed on the U.S. stock market, such as Micron, SanDisk, and Seagate. Experts generally forecast that "considering its overwhelming valuation attractiveness, scale of profits, and technological superiority, this will be a golden opportunity for a re-evaluation."
This is because SK Hynix is valued lower than U.S. semiconductor stocks relative to its earnings. According to comparative data based on Bloomberg forecasts, the 12-month forward PER (Price-to-Earnings Ratio) of major global semiconductor companies was recorded at 23.1 times for TSMC, 11.2 times for Micron, and 10.6 times for Japan's Kioxia. In contrast, SK Hynix and Samsung Electronics stood at just 7 times and 6.0 times, respectively. Compared to the average of the three foreign companies, SK Hynix is discounted by about 56% and Samsung Electronics by about 60%. For retail investors, the key issue is whether SK Hynix will trade at a premium compared to its underlying shares in the U.S. market. If it trades higher than the converted price of domestic common shares, it indicates that U.S. investor demand is stronger than domestic demand, which could drive up the domestic stock price. However, if the stock price has already priced in the effects of the New York listing, a "sell-on" event similar to Samsung Electronics' earnings announcement could occur. If such a trend emerges, there are concerns that semiconductor stock prices could face high volatility again next week. The minutes of the U.S. Federal Reserve's FOMC meeting, to be released on July 8 (local time), will provide insight into the atmosphere of the first FOMC meeting since Chairman Kevin Warsh took office. If FOMC members are shown to have expressed significant caution regarding inflation, that in itself could serve as hawkish material. In this unsettled environment, it is undeniable that the biggest variable for the South Korean stock market in the second half of the year, which has entered July, is the intensity of U.S. interest rate hikes. If the Fed's rate-hiking stance strengthens, funding costs for hyperscalers will rise, and without intervention from the U.S. administration, some big tech companies could face marginal situations. Ongoing rumors of financial instability at OpenAI remain a major source of anxiety, which could accelerate the trend of foreign investors selling off South Korean stocks.

In addition, other burdens include profit-taking sentiment among domestic and foreign semiconductor shareholders, margin calls (forced liquidation) that occur during sharp stock price drops in the domestic market, and the selling pressure from the National Pension Service's rebalancing, which could sporadically emerge in response to negative news related to AI investments. Another burden is the exchange rate. The continued weakness of the Korean won is a factor driving foreign selling and is putting pressure on domestic interest rate hikes. If the Bank of Korea raises its benchmark interest rate as signaled, it is expected to narrow the interest rate gap with the U.S., but this effect will vanish if the U.S. Fed raises rates in a hurry.
After passing through a short-term correction period in July, the Kospi is expected to recover its upward trend. This is because target stock prices based on earnings remain high, and there are solid reasons to trust the strength of semiconductor demand, such as long-term contracts. However, it is unlikely to break through the 10,000 level immediately. While the earnings outlook and demand for South Korean semiconductor companies are solid, the burden of profit-taking sentiment following the Kospi's rapid short-term rise and the vulnerability of leveraged ETF volatility mean that even minor issues will heavily impact stock prices in the second half of the year. The fact that South Korean semiconductor-related stock prices have begun to conversely influence the U.S. stock market is also amplifying volatility.

In the grand scheme of things, the most critical variable will be the sustainability of AI investment intensity by U.S. big tech companies. Google's parent company, Alphabet, decided on a capital increase of over $80 billion in June, deviating from its previous pattern of utilizing surplus cash. This suggests that the fierce competition among big tech firms for dominance in the AI industry is advancing to the next level. While South Korea can expect semiconductor demand to strengthen further for the time being, it is necessary to prepare for the approaching finale, as the moment when winners and losers in the AI race are decided could mark an inflection point for DRAM demand.

Starting with TSMC's earnings announcement on July 16, followed by Microsoft, Amazon, Google, and then SanDisk and Nvidia in August, these earnings reports will serve as key events to gauge whether the semiconductor market has peaked. If big tech companies continue to expand their capital expenditure this quarter, the supercycle will steadily continue, but if changes occur, it will be a different story.

Industrially, the peak of the so-called semiconductor rally is highly likely to occur as early as the second half of next year, 2027. Although supply shortages are expected to persist into 2028, the demand structure is highly likely to be reorganized alongside the consolidation of related infrastructure centered on companies that win the AI dominance race. On the other hand, the peak of the stock market is bound to precede this. While the peak of stock prices can numerically be predicted for the first half of next year, not a few experts warn that investors should prepare for the actual peak in October of this year. Anticipating stock price trends through the industry's peak remains a homework assignment for investors.
※ Please note: This article was translated by AI and may contain errors.