Fueled by expectations for expanded artificial intelligence (AI) investment, the ongoing semiconductor rally is spreading to materials, parts, and equipment (so-called "small-but-strong" suppliers). As profit-taking emerges centered on large-cap semiconductor stocks and short-term volatility grows, the market is turning its attention to these corporations as the next investment destination. However, experts advise that rather than betting on the entire sector on the back of improving conditions from greater AI investment, this is the time for "separating the wheat from the chaff" by selecting corporations with structural competitiveness.
According to the Korea Exchange (KRX) on the 8th, over the past month (June 5 to July 6) foreign investors recorded the largest net purchases in KOSDAQ of semiconductor materials, parts, and equipment corporations such as LEENO Industrial (682.0 billion won), ISC (258.5 billion won), and EO Technics (254.2 billion won). Even corporations in this segment that were hard to find among the top ranks of KOSDAQ market capitalization as recently as late last year have raised their presence this year, with Jusung Engineering, Wonik IPS, and LEENO Industrial entering the upper tier.
The securities industry is focusing on the fact that, unlike in the past, the current semiconductor earnings cycle is not a simple memory recovery but a structural, AI-centered investment cycle. With Samsung Electronics and SK hynix presenting mid- to long-term investment plans and memory capacity expansions expected to continue through 2027 to 2028, earnings outlooks across the semiconductor value chain, including front-end and back-end processes, are being revised higher.
Lee Chang-min, an analyst at KB Securities, said, "Semiconductor materials, parts, and equipment corporations are expected to benefit from a longer and stronger expansion cycle than ever before," adding, "As a structural investment cycle begins to respond to AI-centered demand growth, there is a high possibility of a valuation re-rating for domestic corporations in this space that were undervalued due to past memory concentration."
But some note that the entire segment should not be approached with a single view. In fact, even among semiconductor supplier ETFs, performance is diverging widely depending on the holdings.
According to the Korea Exchange (KRX), excluding leveraged and inverse products, the semiconductor ETFs with the highest returns over the past month (June 2 to July 3) were "HANARO semiconductor core process leaders" (24.45%) and "SOL semiconductor front-end" (18.77%). These products have high weights in front-end equipment companies such as VM, PSK, and TES.
By contrast, "TIGER AI semiconductor core process" and "KODEX AI semiconductor core equipment," which have high weights in back-end and packaging corporations such as HANMI Semiconductor and ISU Petasys, fell more than 13% each over the same period. In fact, VM and PSK shares soared 82.62% and 94.35%, respectively, over the month, while HANMI Semiconductor and ISU Petasys fell more than 20%.
Experts said that going forward, corporations' inherent competitiveness, rather than simple cyclical benefits, will determine returns.
Jeong Woo-sung, an analyst at LS Securities, said, "In this segment, it is necessary to distinguish between profit increases riding the memory cycle and corporations' inherent growth drivers," adding, "There is investment value in corporations whose operating margin (OPM) and earnings per share (EPS) can rise further through acquiring new customers, gaining market share, and expanding high-value products beyond what can be explained by memory price increases and bit supply growth alone."
Caution about the AI investment cycle itself still remains. Lee Min-hee, an analyst at BNK Investment & Securities, regarding Meta's recent plan to sell AI infrastructure externally, said, "It can also be seen as a signal of excessive investment in AI infrastructure and suggests the possibility of adjusting the pace of capital spending going forward," adding, "It is also necessary to watch for the possibility that second-half capex forecasts have been overestimated and for capital-raising risks."