Samsung Electronics and SK Hynix. Yonhap News
Nomura said South Korea’s leading memory chipmakers, Samsung Electronics and SK hynix, are deeply undervalued after a recent global market selloff, and predicted both will rebound on solid fundamentals.
In a report released on the 4th, Nomura maintained buy ratings on both companies and kept its target prices at 670,000 won for Samsung Electronics and 4.7 million won for SK hynix. The brokerage said the two stocks have fallen about 37% from their peaks and now trade at an average of just three times projected 2027 earnings, a level it described as severely undervalued.
“The memory market is seeing unprecedented demand strength driven by the artificial intelligence investment cycle, while supply falls far short,” Nomura said. “Global memory production capacity will need to double to 7.2 million wafers a month within four years, and triple to 11 million wafers a month within six years, to meet exploding demand.”
Aggressive capacity expansion by Chinese producers will have only a marginal impact on overall supply and demand, the report said, leaving the market in shortage through 2028. Long-term agreements, or LTAs, introduced amid the severe shortage are reshaping the industry. Major customers including big technology companies are signing five-year contracts and accepting price ceilings up to 20% above current levels to secure volumes.
“The 20% to 30% prepayments and strong penalty clauses that come with these deals give major memory suppliers such as Samsung Electronics, SK hynix and Micron a level of earnings visibility and stability that is incomparable to the past,” Nomura said.
A stronger won was cited as a short-term risk. Nomura cut its third-quarter operating profit estimate for SK hynix to 77 trillion won from 86 trillion won to reflect the currency’s strength, and projected 107 trillion won for Samsung Electronics. “Korean memory companies are paid in dollars, but a significant portion of their costs — about 20% of revenue — is denominated in won,” the brokerage said. “A 10% appreciation in the won creates a short-term earnings drag of roughly 12% on operating profit.”
The currency headwind will be more than offset by sharply rising memory average selling prices, Nomura said. It added that a stronger won is a natural consequence of the large trade surplus generated by the semiconductor supercycle.
Nomura said capital spending capacity at big technology companies is far stronger than the market fears, and that a firm memory market combined with aggressive shareholder return policies will drive a meaningful re-rating of both stocks.