KB Securities forecasted on August 6 that the semiconductor sector will enter a full-scale earnings-driven rally starting in August, following the sharp decline that persisted throughout July. The brokerage stated that excessive leverage liquidation and supply shocks have been offset, with global big tech's AI investment confidence and structural supply-demand imbalance expected to drive stock prices. KB Securities assessed that the semiconductor sector's stock prices fell an average of 34% in July, exceeding the declines seen during past financial crises and the COVID-19 pandemic.
KB Securities Attributes July Decline to Leverage Liquidation
According to KB Securities, the semiconductor sector's sharp decline in July occurred as speculative positions accumulated due to the global semiconductor concentration from April to June and excessive credit leverage expansion. The selloff reached its largest scale in four years since 2022, as concerns over AI investment sustainability stemming from big tech's free cash flow (FCF) deficits and geopolitical risks including the Iran situation were highlighted simultaneously.
Big Tech Cloud Reservations Completed Through 2028
KB Securities reported that major North American big tech companies have effectively completed cloud reservations through 2028, transforming FCF deficit concerns into confidence in AI demand and investment expansion. Kim Dong-won, head of KB Securities Research Division, stated: "Major big tech and AI substrate companies recently announced through earnings reports that sales reservations are virtually complete through 2028, and free cash flow is improving significantly based on high utilization rates and price increases. All customers are accepting price increases while simultaneously requesting large-scale capacity expansion."
Memory and AI Substrate Supply Shortage to Persist for Three Years
KB Securities calculated that big tech customers' memory and AI substrate demand fulfillment rate currently stands at only 60% to 70% as of Q3. The brokerage explained that unmet demand exceeding supply will be carried over to the following year annually, resulting in sequential demand carryover from this year to next year and through 2028. Considering that new memory and substrate production line completion requires a minimum of two to three years, supply shortages are inevitable for the next three years.
KOSPI Valuation at Historic Low Levels
Korean stock market's relative overheating concerns have been substantially resolved. KOSPI rose over 100% from the beginning of the year in the first half, showing more than double the increase rate compared to Taiwan's TAIEX. However, as of August 5, the year-to-date increase rate lowered to 57%, significantly narrowing the gap with TAIEX's 54%. Kim stated: "KOSPI's next-year valuation currently stands at PER 5.0x, PBR 1.26x, and ROE 28%, remaining at historically lowest levels. In particular, Samsung Electronics' next-year P/E ratio is only 3.6x, and SK Hynix is at 3.5x."
FAQ
What did KB Securities forecast on August 6 regarding semiconductor stocks?
KB Securities forecasted that the semiconductor sector will enter a full-scale earnings-driven rally starting in August, following July's sharp decline. The brokerage stated that excessive leverage liquidation and supply shocks have been offset.
How severe was the July decline in semiconductor sector stocks?
KB Securities assessed that semiconductor sector stock prices fell an average of 34% in July, exceeding the declines seen during past financial crises and the COVID-19 pandemic, representing the largest selloff in four years since 2022.
What is the current supply-demand situation for memory and AI substrates?
According to KB Securities, big tech customers' memory and AI substrate demand fulfillment rate stands at only 60% to 70% as of Q3, with supply shortages expected to persist for the next three years due to the minimum two to three years required for new production line completion.
