Analysts say SK Hynix’s ferocious rally could continue, even after the South Korean memory chip giant soared more than 250% this year on rising demand for artificial intelligence. SK Hynix’s market capitalization has surpassed $1 trillion as investors flock to the company seen as the main beneficiary of the global race for high-bandwidth memory chips used in AI servers. “The fundamentals and valuations of the two twin towers still appear to be largely intact,” Peter Kim, global investment strategist at KB Securities, told CNBC’s “Squawk Box Asia”, referring to SK Hynix and Samsung Electronics. But some strategists argued that despite the stock’s rise, valuations remain relatively cheap because earnings estimates are rising faster than the stock price. “In fact, it’s surprising that the valuation is so low, as the analyst race to raise earnings is actually outpacing the stock price,” Kim added. He added that based on analyst estimates, US memory giant Micron Technology’s P/E ratio is around 12 times, while SK Hynix and Samsung’s P/E ratio is around 6 to 7 times. “If you look at the fundamentals of valuation, not just the stock price, I would say we’re not even halfway through this amazing bull market,” Kim said. Wedbush Securities analyst Dan Ives said in a recent note that the current AI boom is just “the third inning of a nine-inning game.” “The AI revolution is firing on all cylinders,” Ives wrote, adding that demand for HBM, DRAM, and NAND memory is reaching “unprecedented levels.” HBM is used in AI accelerators and servers, while DRAM and NAND are widely used as memory and storage chips across electronic devices. “We believe SK Hynix is a core beneficiary of this memory supercycle and one of the most important AI roles in the market today, as the market still significantly underestimates the duration and magnitude of this cycle,” he said. Ives said demand for chips continues to outstrip supply as cloud giants accelerate investments in AI infrastructure, with Big Tech capital spending expected to reach about $725 billion. Concentration risk? Still, some investors are growing concerned about the rising risk of market concentration in South Korea’s stock market. Samsung Electronics and SK Hynix account for more than 40% of South Korea’s benchmark Kospi, raising concerns that the market could be further exposed to risks such as supply chain disruptions and a slowdown in global data center investment. Kim said the market has become a “very polarized situation,” with a small number of AI stocks having a large impact on benchmark performance. Despite the concerns, he maintained that the significant risks that typically end semiconductor upcycling are unlikely to emerge anytime soon. “What really breaks the cycle… is always overcapacity in the end, but it will take at least a few years for capacity to recover,” he said. “That’s why I would say we’re probably about halfway through this rally.” But other investors are also becoming more selective as Asian semiconductor stocks soar. Philip Uhl, lead portfolio manager at Rayliant Global Advisors, said the enthusiasm for AI hardware has now spread beyond U.S. tech stocks to emerging markets. “We still have SK Hynix, and we still have Samsung Electronics, TSMC, etc., which are still great companies with incredible growth,” Wool said. “But the AI craze, which until now has been primarily a developed market phenomenon, is clearly finally spilling over into emerging markets,” he added. Wool warned that stocks such as SK Hynix, Taiwan Semiconductor Manufacturing Co. and Samsung now have “higher hurdles to outperformance” as investors increasingly expect abnormal levels of AI-related capital spending to continue.
