With earnings announcements this week from Samsung Electronics and SK hynix, as well as global big tech companies including Microsoft (MS), Meta, and Amazon, the recently raised argument that semiconductors have "peaked" is back on the test bench. The securities industry expects this earnings season to be an inflection point to review both the memory market and the investment stance on artificial intelligence (AI).
The outlook for the memory market and supply and demand for high-bandwidth memory (HBM) remains a key focus this earnings season. But market attention has moved a step further to whether big tech can keep pouring money into AI and whether they have the cash-generating power and financing capacity to back it up.
◇ Not earnings but the "sustainability" of AI investment… market eyes cash-generating power
On the 27th, according to financial data firm FnGuide, SK hynix's second-quarter revenue is estimated at 84.1693 trillion won, up 278.6% from a year earlier, and operating profit at 64.2448 trillion won, about seven times higher. Samsung Electronics earlier signaled record quarterly results in its preliminary earnings, with revenue of 171 trillion won and operating profit of 89.4 trillion won.
Investors, however, are paying more attention to the company's commentary on memory supply-demand outlook, long-term agreements (LTA), and the sustainability of AI investment to be discussed on the conference call than to the strong results themselves.
A similar shift showed up in recent U.S. big tech earnings. Alphabet beat market expectations and raised its capital expenditures (CAPEX) plan for the year, but its free cash flow (FCF) turned negative, sending the stock lower.
In the past, a CAPEX increase was taken as a sign of expanding AI demand, but now concerns are more fully reflecting whether the investment ramp-up is damaging the cash-generating power of corporations.
Choi Bo-Young, a Kyobo Securities analyst, said, "The recent semiconductor stock adjustment is more about a reassessment of the pace of investment payback than a slowdown in AI demand," adding, "AI demand is solid, but the market's gaze is shifting from growth to capital efficiency and cash-generating power."
Kim Jae-Seung, a Hyundai Motor Securities analyst, also said, "In this earnings round, the key to reviving semiconductor investor sentiment will be less the size of AI investment and more whether existing businesses can generate stable cash."
The financing burden from expanding AI investment has also emerged as a new variable. To shoulder AI spending, companies are issuing more corporate bonds and taking on more debt, and higher interest rates and rising oil prices are pushing up the cost of capital steeply. The recent rise in credit default swaps (CDS) for some hyperscaler companies is seen as reflecting these concerns.
Park Sang-Hyun, an iM Securities analyst, said, "The deterioration in hyperscalers' free cash flow and the expansion of large-scale corporate bond issuance are variables the market will watch for the time being."
◇ Memory outlook is "clear" … a slowdown in profit growth rate is a variable
Views on the memory market itself remain positive. The securities industry believes that recent concerns about a slowdown in the NAND market are largely priced in, and that a shortage of DRAM supply due to expanded HBM production is likely to intensify. The expansion of long-term supply agreements and AI data center investment are also seen as factors that improve mid- to long-term earnings visibility.
Kim Dong-Won, head of research at KB証券, said, "We need to distinguish between stock volatility and the fundamentals of the semiconductor industry," adding, "HBM production expansion is likely to make commodity DRAM supply even tighter, leading to higher memory prices."
Experts say the recently raised "semiconductor peak theory" should not be interpreted as the same as an earnings slowdown. They explain that a downturn in the market itself and a slowdown in the "profit growth rate" due to a base effect after last year's strong results are different issues.
That said, caution is emerging that next year semiconductor profits and big tech's facility investment growth rate could slow from this year, making it necessary to monitor related indicators and respond accordingly.
Heo Jae-Hwan, an Eugene Investment & Securities analyst, said, "Semiconductors still have the highest earnings visibility among sectors, but next year it will be difficult for semiconductor profits and big tech's facility investment growth rate to exceed this year's," adding, "It's early to say the uptrend in corporate earnings has ended, but we need time to check U.S. high-yield rates, big techs' profitability, and whether market expectations are being lowered."