As Samsung Electronics and SK hynix, the leading semiconductor stocks, have been hitting fresh record highs day after day, investors gripped by "FOMO (fear of missing out)" are focusing on the materials, parts and equipment sector. With it feeling burdensome to buy the sharply risen Samsung Electronics or SK hynix, investors are looking at materials, parts and equipment companies where a "trickle-down effect" is expected if those companies' earnings improve.
However, experts said that even if the share prices of Samsung Electronics and SK hynix have climbed to all-time highs, the warmth will not be evenly delivered to materials, parts and equipment companies. Because the profit structures of large semiconductor stocks and materials, parts and equipment companies are very different, they noted that investments simply expecting a trickle-down effect may struggle to deliver good results.
According to the Korea Exchange (KRX) on the 9th, Samsung Electronics and SK hynix have each surged 15%–16% just since the start of the new year. That nearly doubles the KOSPI index's gain (8.02%) over the same period. Samsung Electronics has topped 140,000 won, and SK hynix has surpassed 750,000 won, both setting record-high levels.
The drivers lifting these shares are a surge in memory demand from the spread of artificial intelligence (AI) and concerns about supply shortages. According to market research firm TrendForce, in the first quarter of this year the contract price of PC DRAM is projected to rise by as much as 60% from the previous quarter. That far exceeds the increase in the fourth quarter of last year. Over the same period, NAND flash contract prices are also expected to climb 33%–38%.
Global investment banks (IBs) are also sharply raising their expectations. Macquarie projected that memory supply shortages will continue through 2028 and set eye-catching target prices of 240,000 won for Samsung Electronics and 1.12 million won for SK hynix. Citi Group likewise estimated Samsung Electronics' operating profit this year will reach 155 trillion won and raised its target price to 200,000 won.
As the leaders' solo rally continues, investment fervor is shifting to materials, parts and equipment. The expectation is that if Samsung Electronics and SK hynix ramp up capital expenditures (CAPEX) in earnest, orders for equipment and materials suppliers will increase directly.
Indeed, order disclosures by major materials, parts and equipment corporations have already begun. TES recently signed a 12.1 billion won equipment supply contract with SK hynix, while DIT (21.2 billion won) and ISTE (2.3 billion won) also secured orders. YEST likewise signed a 7.6 billion won contract with Samsung Electronics, demonstrating a trickle-down effect from the industry's recovery.
Kang Hyeon-gi, a DB Securities researcher, said, "January has traditionally been strong for small and mid-cap stocks," and added, "If market participants' expectations are now centered on the semiconductor sector, related small and mid-caps could garner additional interest." Kang cited as evidence that the KOSDAQ150 IT index jumped by a similar magnitude on days when Korea's semiconductor sector surged.
Brokerages are also busy hunting for promising stocks. Hana Securities picked TES and VM as beneficiaries of SK hynix's capacity expansion, while LS Securities recommended UNISEM, HANA Materials and KoMiCo. Eugene Investment & Securities cited LEENO Industrial and ISC, and IBK Securities named Hansol Chemical, Wonik IPS, Soulbrain and Jusung Engineering Co. as promising stocks, respectively.
However, experts advise that investing in materials, parts and equipment should not be a strategy of simply following large caps. That is because large caps and materials, parts and equipment have different profit structures. For large semiconductor stocks, earnings can improve with just inventory adjustments and price increases, but for materials, parts and equipment, actual capital investment or production expansion must accompany revenue generation. Given their reliance on fixed customers, materials, parts and equipment companies also have structures where it is difficult for profit margins to rise sharply.
Noh Dong-gil, a Shinhan Investment & Securities researcher, said, "The improvement in the semiconductor cycle is being driven more by price (P) increases than by quantity (Q) growth," adding, "For large caps, price increases alone secure profit visibility, but for materials, parts and equipment, results and share prices start to move in earnest only when increases in actual production volumes are confirmed."
Noh explained, "Semiconductor exports are strong, but shipments and production volumes are still sluggish," and added, "In such phases, the back-end process segments, which are sensitive to large-scale capital expenditures or changes in product mix, tend to show a clear response first, allowing for selective stock picking."