Global investment bank (IB) Goldman Sachs said the boom in memory semiconductors driven by expanded artificial intelligence (AI) investment will last longer than expected and kept its 12-month KOSPI target at 12,000.

The KOSPI index is displayed on the electronic board in the Hana Bank dealing room in Jung District, Seoul, on the morning of the 7th. The KOSPI opens at 6,910.78, up 223.57p (3.34%) from the previous transaction day./Courtesy of Yonhap News

Bloomberg reported on the 7th that Timothy Moe, Goldman Sachs' Asia-Pacific chief equity strategist, said in an interview on the 4th about the KOSPI target, "We are still maintaining our previous stance," adding it was "based on the judgment that corporations' earnings will provide support."

Moe emphasized, "The market is underestimating the duration of this earnings cycle."

He raised the KOSPI target from 9,000 to 12,000 in early June. In early last month, he characterized the market decline since June as a steep correction within a long-term bull market and kept the target.

Goldman Sachs' core basis for its optimism is memory semiconductors. It projected that the memory supply shortage will worsen next year due to the race to build AI data centers. It also estimated that next year's capital expenditure outlook by U.S. big tech corporations will rise from the previous $800 billion to $1.2 trillion.

Moe explained, "Hyperscalers are in a situation where they must keep investing even if they fail to generate revenue," adding, "As computing demand increases, massive amounts of memory are required, which is positive for the memory industry."

Goldman Sachs projected that this year's earnings of KOSPI-listed companies will rise by about 360%. It forecast that next year's earnings growth rate will slow to 35%.

The target of 12,000 for the KOSPI was derived by applying a price-earnings ratio (PER) of 7.5 times to 12-month forward earnings. The KOSPI is currently trading around 5.3 times, which is only about half of the seven-year recent average, according to Goldman Sachs' analysis.

Moe said that if Korean corporations deliver results in line with Goldman Sachs' earnings forecasts, the 12,000 KOSPI target "will not look outlandish."

He cited the growth of Chinese memory company CXMT and political backlash over data center construction in the United States as risk factors. However, he projected that over the coming years market conditions will work in favor of advanced memory semiconductor corporations.

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