Reality bites for South Korea’s memory chip wonder-stocks

{"text":[[{"start":4,"text":"Sometimes it’s enough to be lucky. Memory-chip makers have for the past year been the investing equivalent of repeatedly putting everything on black. AI-related demand has soared, and with it profit estimates, target prices and the stocks themselves. But the mood has changed, and even the most stalwart chip boom believer must now reckon with nuance."}],[{"start":26.52,"text":"Seoul-listed shares in SK Hynix sank 10 per cent on Wednesday as booming sales and operating profit undershot fevered forecasts, adding to the recent investor jitters. The Korean chip giant is now down 50 per cent in five weeks, and rivals such as Samsung Electronics are not far behind."}],[{"start":44,"text":"Amid the whiplash, investors might be forgiven for thinking that SK Hynix now looks cheap, at less than 3 times forecast earnings two years hence, according to Bloomberg data."}],[{"start":null,"text":"

"}],[{"start":54.16,"text":"Granted, those numbers depend on SK Hynix being able to achieve those forecast earnings, which means maintaining the whip hand with its buyers for at least that long. And, in turn, that depends on there continuing to be more demand for chips than the producers can satisfy."}],[{"start":69.88,"text":"That’s by no means a given. It is not hard to see scenarios where chipmakers roll out new manufacturing capacity just as the likes of Anthropic or Google either pause their data centre race or are forced to. New York this month became the first US state to limit data centre construction because of concerns over their energy and water use."}],[{"start":89.48,"text":"Chipmakers are notorious for turning booms into busts. SK Hynix will invest about $130bn to the end of 2028, according to Visible Alpha, more than four times what it spent over the past three years. Its new practice of signing long-term deals with key customers may help, especially where customers pay upfront deposits. Still, to miss earnings expectations only three weeks after selling $27bn of shares in New York suggests the company’s crystal ball gets too easily fogged up."}],[{"start":118.88,"text":"It’s helpful to think through what would happen in the event of a Silicon Valley volte-face. Lop one-fifth off forecast 2028 earnings, on Visible Alpha estimates, and SK Hynix trades on a multiple of 3 times. But a fall of that scale is mild by the standards of chipmakers: SK Hynix’s operating profit dropped 90 per cent in 2011 as chip prices cratered."}],[{"start":142.96,"text":"Say instead that profits halved in 2028, perhaps from a combination of a sharp drop in demand for memory and lower prices. That would put the shares today on a multiple of 5, closer to their 10-year average of almost 7. That doesn’t make SK Hynix a poor investment. The market has realised, though, that it’s not one that will automatically keep going up."}],[{"start":168.78,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1785382694_9266.mp3"}