[Practical Finance] 'AI Assistant' Semiconductor, Will Ultimately Prevail

[Asia Economy Reporter Park So-yeon] Investment experts predict that as the artificial intelligence (AI) industry advances, semiconductor demand will also increase explosively. This is because large-scale AI models like ChatGPT require central processing units (CPUs) and graphics processing units (GPUs), which act as the brain for machine computations, to function smoothly. This explains the growing interest in related companies and investment products.

Kim Seong-hoon, Head of the ETF Business Division at Hanwha Asset Management, emphasized, "AI semiconductors and GPUs, which need to process large volumes of data at once, are sold together with high-performance memory," adding, "The hidden beneficiary of the AI boom is the semiconductor industry." He mentioned NVIDIA, Samsung Electronics, and SK Hynix as companies benefiting from the AI boom. NVIDIA, which holds 80% of the global GPU market, supplies over 10,000 GPUs to OpenAI and plans to continue supplying GPUs to big tech companies. Samsung Electronics' intelligent semiconductor (PIM) adds computing functions to memory semiconductors, reducing data movement between the CPU and memory to enhance performance and efficiency. SK Hynix's next-generation DRAM (HBM3) vertically connects DRAM chips to increase data processing speed.

Expectations for NVIDIA, Samsung Electronics, and SK Hynix
Focus on Positive Factors as Negative Issues Like Inventory Are Already Priced In

Major securities firms also have a positive outlook on investments in semiconductor companies. KB Securities maintained a target price of 80,000 KRW and a buy rating for Samsung Electronics. They analyzed that AI, including ChatGPT, has a clear growth trajectory and is a definite positive factor for future memory demand. Currently, memory prices have dropped by 50% in the first quarter, with all global memory manufacturers producing DRAM below production cost and NAND estimated to have reached cash cost levels. If DRAM and NAND prices fall an additional 29% in the first half of this year, DRAM is expected to reach cash cost levels by the second quarter. Daishin Securities also raised Samsung Electronics' target price to 80,000 KRW and maintained a buy rating. Although memory product prices are expected to continue declining in the second quarter, the reduction in the scale of inventory valuation losses due to a slowdown in price declines is expected to make the first quarter the bottom for earnings. From the second half, earnings are expected to improve with the reversal of inventory valuation losses. Some argue that despite the semiconductor cycle being in a downturn, contrarian investment should be considered.

Experts generally cite that Samsung Electronics' stock price tends to lead the semiconductor market by about six months and that a potential decrease in capital expenditures due to earnings decline could increase supply tightness. They suggest focusing on positive factors as negative issues have already been priced in. In particular, expectations are growing that the expansion of the AI market driven by ChatGPT will increase demand for next-generation DRAM, which will influence stock prices. The competitive AI investment expansion by global big tech companies such as Microsoft and Alphabet is expected to lead to an early recovery in the semiconductor market.

The AI semiconductor market is expected to grow about twofold over the next three years. According to market research firm Gartner, the AI semiconductor market size last year was $44.4 billion (approximately 57 trillion KRW), a 27.8% increase from the previous year. It is expected to reach about $86.1 billion (110.46 trillion KRW) by 2026, roughly doubling. Samsung Electronics and SK Hynix are paying close attention, viewing the AI boom as having a positive impact on future memory demand.

Although the semiconductor market remains sluggish, industry leaders express strong confidence in the growth of the semiconductor industry. Recently, Park Jung-ho, Vice Chairman and CEO of SK Hynix, emphasized that AI semiconductors will become a new "killer application" driving semiconductor demand. Park said, "As the AI era unfolds with technologies like ChatGPT evolving, global data generation, storage, and processing volumes are expected to increase exponentially," adding, "To overcome the limitations of expanding existing memory capacity directly connected to CPUs, the role of shared memory such as CXL will become increasingly important." He continued, "In this trend, SK Hynix's world-first development of the highest-speed DRAM, HBM, plays a significant role in the evolution of AI era technologies," and added, "Korean semiconductors should contribute to the planet and humanity through the development of high-efficiency, high-performance products, and this leadership should create a virtuous cycle that strengthens industry competitiveness." Kim Jae-jun, Vice President of Samsung Electronics' DS Division, also stated during a recent earnings conference call, "As large-scale language model AI services expand, hardware demand is expected to increase," and "We plan to actively respond to the growing demand related to AI services by developing high-performance, high-capacity memory that the market requires."

Kim Jeong-hyun, Head of the ETF Management Center at Shinhan Asset Management, advised, "The popularization of AI like ChatGPT directly increases GPU demand but can also boost demand for memory semiconductors centered on DRAM," recommending, "A strategy that covers the entire semiconductor industry while investing meaningfully in Korean companies, which are global leaders in memory semiconductors, to build a balanced investment portfolio between memory and non-memory sectors."