As the debate over overvaluation grows on Wall Street with claims that "artificial intelligence (AI) is too expensive," U.S. big tech corporations including AMD, Nvidia, Broadcom, Meta and Tesla took hits to their share prices on the 4th (local time), drawing attention in Korea to the potential impact on Samsung Electronics and SK hynix. The securities industry also sees such concerns as a risk that could weigh on the share prices of Samsung Electronics and SK hynix, and some suggest there is a possibility that memory chip prices will reflect this with a time lag.
However, the industry consensus is that while this debate may influence big tech's pace of AI capital expenditures (CAPEX), actual AI demand remains intact. It may affect related corporations' share prices in the short term and somewhat ease the surge in memory prices, but the explanation is that it will not hinder the sustained uptrend. Inside Samsung Electronics and SK hynix, some even say this is "pace control" needed to sustain the boom over the long term.
With the debate over the overvaluation of AI-related stocks continuing, the New York stock market closed mixed on the 4th (local time) amid sector rotation. Among big tech corporations with a market capitalization over $1 trillion, only Apple and Microsoft (MS) rose, while the rest fell across the board. Nvidia fell more than 3%, and Broadcom, Meta and Tesla each dropped in the 3% range. Amazon and Alphabet also fell more than 2%. AMD plunged 17% after issuing a quarterly revenue outlook that missed market expectations.
This is not the first time that a bubble argument over the AI frenzy has surfaced. Following last year, throughout this year Wall Street and the domestic and overseas securities industry have repeatedly flagged overheated investment and profitability issues for AI-related stocks. But after Samsung Electronics and SK hynix posted record results in the fourth quarter of last year and signaled that memory shortages would persist throughout this year, the two corporations dispelled some concerns over an AI bubble.
There are also calls that the current situation, in which big tech such as Nvidia, Broadcom, Meta and Google are absorbing a significant portion of the output from major memory corporations like Samsung Electronics and SK hynix, needs to cool somewhat. From that perspective, some view the latest AI overvaluation debate not as a headwind for Samsung Electronics and SK hynix but rather as a necessary step toward normalizing the market.
A senior Samsung Electronics official said, "An excessively deep surge in memory prices and a prolonged supply crunch are not desirable even from the standpoint of memory corporations in the long run," adding, "From the perspective of the electronics and IT industry evolving into an ecosystem where steady growth demand arises while maintaining the current level of technology, whether it is a bubble argument or a warning sign, a trigger for pace control is needed."
SK hynix also said that while market expectations for its share price could be adjusted to some extent, there would be no impact on actual shipments and profitability. A person familiar with SK hynix said, "I believe the reason the New York market is wobbling now comes from concerns that 'AI data center investment is running too fast,'" adding, "As we noted on the fourth-quarter earnings conference call last year, HBM3E (5th-generation HBM) and HBM4 (6th-generation HBM) are already fully sold under contract, and in terms of annual demand, both DRAM and NAND flash are in an unprecedented boom."
The general-purpose DRAM and NAND markets are continuing an unprecedented price rally due to reduced shipments from Samsung Electronics and SK hynix. According to Counterpoint Research, memory prices in the first quarter of this year are expected to rise 80% to 90% from the previous quarter. Counterpoint Research analyzed that the surge in general-purpose server DRAM is the main driver. NAND flash memory, which had relatively smaller gains through the fourth quarter of last year, is also expected to climb by 80% to 90% in the first quarter of this year.
Choi Jeong-gu, a senior analyst at Counterpoint, said, "Manufacturers are suffering a double whammy of rising component prices and weakening consumer purchasing power," and analyzed, "Demand is likely to slow as the quarter progresses." Choi also said, "Manufacturers' profit and loss is expected to reach levels never seen before," adding, "The first quarter of this year will be the first time DRAM margins surpass their historical peak."