[Edaily Reporter Kim Kyung-eun ] Analysis suggests that the sharp drop in the stock prices of SamsungElectronics(005930)and SK hynix(000660)stemmed from supply-and-demand instability caused by massive selling by foreign investors, rather than a deterioration in the semiconductor industry. As the stock prices of both companies have fallen to historically undervalued levels, the outlook is that they will stage a “W-shaped rebound” based on future earnings improvements.

Kim Dong-won, Head of Research at KB Securities, stated in a report on the 14th, “We believe the stock prices of SamsungElectronics and SK hynix have formed a second trough during the W-shaped rebound that began in July of this year.”

Since the start of this month, the stock prices of SamsungElectronics and SK hynix have plummeted by 15.9% and 21.3%, respectively. Consequently, the price-to-earnings ratio (P/E) for both companies has fallen to 3 times, and their price-to-book ratio (P/B) has dropped to 1.4 times. These levels are close to the undervalued conditions seen in October of last year and April of this year.

In particular, SamsungElectronics and SK hynix plunged 7.4% and 10.1%, respectively, the previous day. Market uncertainty was heightened by China’s Changxin Memory Technology (CXMT)’s plan to launch server DRAM by year-end, as well as remarks by the CEOs of Intel and Broadcom emphasizing the importance of raising capital to sustain investments in artificial intelligence (AI).

KB Securities analyzed that while these concerns are superficial factors, the core cause of the decline is large-scale net selling by foreign investors and the resulting contraction in investor sentiment. In fact, the cumulative net selling by foreign investors this year has exceeded 200 trillion won, with approximately 12 trillion won in selling concentrated this month alone. The firm explained that the scale of the stock price decline widened as the supply-demand gap grew due to this massive outflow of capital.

Division Head Kim interpreted the situation, stating, “The recent selling by foreign investors was driven primarily by a contraction in investor sentiment resulting from increased volatility in macroeconomic variables—such as interest rates and oil prices—rather than concerns about the semiconductor industry’s business conditions or earnings.”

In fact, earnings outlooks for semiconductor companies are being revised upward. KB Securities estimates that the combined operating profit of SamsungElectronics and SK hynix will increase from 626 trillion won this year to 944 trillion won next year. It forecasts that SamsungElectronics’ operating profit will rise from 367 trillion won this year to 555 trillion won next year, while SK hynix’s will increase from 259 trillion won to 389 trillion won.

In particular, the report raised the possibility that the two companies’ combined operating profit could exceed 1,000 trillion won next year. The analysis suggests that SamsungElectronics could achieve an operating profit of around 600 trillion won, while SK hynix could reach around 400 trillion won.

“Amid a further deepening of the memory supply shortage next year, we expect significant price increases for High-Bandwidth Memory (HBM) and general-purpose memory,” said Director Kim. “Therefore, it appears highly likely that earnings estimates for both companies will continue to be revised upward in the future.”

He also cited Jay Y. Lee, the chairman of SamsungElectronics, as a factor supporting the view that the stock is undervalued. The SamsungElectronics shares acquired by Jay Y. Lee through over-the-counter purchases amount to 1.9 trillion won, and the acquisition price of 250,500 won per share is 8.0% higher than the previous day’s closing price.

Regarding this, Director Kim commented, “This can be interpreted as a signal supporting the view that the current stock price does not sufficiently reflect the company’s medium- to long-term growth prospects and potential for earnings improvement.”