[Expert Says - Industry Outlook] "HBM Growth, Cannot Rule Out Possibility of Exceeding Market Expectations"

Interview with Nogeun Chang, Head of Research Center at Hyundai Motor Securities
SK Hynix Expected to Set Record High Operating Profit
Samsung Electronics' Operating Profit Achieved Without HBM3E Supply Requires Analysis

Noh Geun-chang, Head of the Research Center at Hyundai Motor Securities, is giving an interview to Asia Economy at the Hyundai Motor Securities headquarters.
[Photo by Hyundai Motor Securities]

"The growth of the High Bandwidth Memory (HBM) market may exceed the levels currently anticipated by everyone."

No Geun-chang, Head of the Research Center at Hyundai Motor Securities, stated that it is too early to make a definitive judgment on the growth scale of the HBM market, which is currently driving the semiconductor cycle.

SK Hynix Expected to Record All-Time High Operating Profit

SK Hynix, the 'HBM powerhouse' that led the stock market in the first half of this year, is about to announce its Q2 earnings. No said, "We expect SK Hynix's Q2 operating profit to be about 5.5 trillion KRW. This not only exceeds market expectations but is also nearly double the 2.8 trillion KRW recorded in Q1. We estimate that the proportion of HBM within total DRAM has increased from Q1 to around the mid-20% range. The importance of HBM continues to grow."

No analyzed SK Hynix's expected operating profit while mentioning the performance of TSMC, the world's largest foundry company. On the 18th, TSMC announced Q2 results that exceeded market expectations. No noted, "What is particularly noteworthy in TSMC's results is that high-performance computing (HPC) related to artificial intelligence (AI) data centers accounts for more than half of total sales. This means that Nvidia is enjoying a strong business environment, which is connected to SK Hynix's HBM."

He continued, "Nvidia's next-generation architecture, Blackwell, is expected to be supplied in earnest to major cloud service providers and other customers from the latter part of Q4. The HBM sales embedded in Blackwell will be recorded in early Q4. Although good earnings sometimes lead to one-time costs such as bonuses in Q4, causing profits to slow down, the Blackwell effect could improve profits until the end of the year," he pointed out.

Regarding some concerns that SK Hynix's valuation is somewhat excessive, he said, "SK Hynix has greater dominance and relatively higher profits in the HBM market than Micron Technology, a U.S. memory semiconductor manufacturer, yet its market capitalization is smaller. Therefore, there seems to be no need to be overly fearful of the current valuation." He added, "If the HBM market environment exceeds current market predictions, there is a possibility that earnings per share (EPS) could rise further. Additionally, SK Hynix's low-power double data rate (LPDDR) 5 product line achieves data transfer speeds of over 9000 Mbps, which is industry-leading. The fact that most AI PCs are equipped with LPDDR5X presents an opportunity for SK Hynix, which holds significant technological competitiveness in this area."

No forecasted that SK Hynix's annual operating profit would peak this year. He said, "SK Hynix recorded nearly 21 trillion KRW in operating profit in 2018. However, this year's annual operating profit is expected to approach 25 trillion KRW due to the HBM effect. This would surpass the historic record set six years ago. However, Samsung Electronics is unlikely to exceed its 2018 operating profit," he added.

Samsung Electronics Focuses on Memory Profitability

Noh Geun-chang, Head of the Research Center at Hyundai Motor Securities, is being interviewed by Asia Economy at the Hyundai Motor Securities headquarters.
[Photo by Hyundai Motor Securities]

On the 5th, Samsung Electronics announced its preliminary Q2 results, reporting an operating profit of 10.4 trillion KRW. No said, "We estimate that about 7.2 trillion KRW of Samsung Electronics' operating profit comes from memory semiconductors. While SK Hynix achieved record profits through Nvidia-bound HBM, Samsung Electronics generated even greater profits without this, which warrants consideration."

No continued, "The profitability of data center solid-state drives (SSDs), which are experiencing a super boom based on differentiated controller integrated circuit (IC) competitiveness, likely exceeded estimates significantly. Regarding this, it appears that North American cloud service providers (CSPs), which account for over 75% of global AI server investments, heavily rely on Samsung Electronics," he explained. He also noted, "For AI graphics processing units (GPUs) supplied to China, such as the L20 and L2, which use Graphics Double Data Rate (GDDR) 6, Samsung Electronics may have benefited from large-scale shipments of GDDR6. The market may have recently overlooked Samsung Electronics' hidden memory capabilities," he pointed out.

No also mentioned that the opportunity for Samsung Electronics to supply Nvidia-bound HBM3E remains a factor for stock price revaluation. He said, "More HBM will likely need to be installed to improve GPU performance, which is expected to grow in 2025. Considering the HBM demand for the Rubin Ultra GPU scheduled for release in 2027, Nvidia will find it difficult to produce the desired number of GPUs without Samsung Electronics. Ultimately, Samsung's supply will be necessary." He added, "The possibility of supplying HBM3E to Nvidia is clearly a re-rating factor."

Possibility of a Longer Boom Cycle... "Short-Term Corrections Can Occur Anytime"

No said that the current semiconductor cycle could last longer than the market expects. He explained, "The cycle experienced in 2017-2018 was a cloud server DRAM cycle. Now, it is an AI data center cycle with HBM added. Since HBM encroaches on DRAM production capacity (CAPA), oversupply is unlikely to occur quickly. Also, AI data centers have diverse investors, including cloud providers, telecom operators, government agencies, and general enterprises," he said. He added, "Last year, SK Hynix and Micron Technology significantly reduced capital expenditures. Therefore, this cycle is likely to last longer than before, at least until 2025. Many in the industry hold conservative views based on the 2021 cycle experience. We must fully consider the possibility that HBM growth will continue beyond current market expectations."

Regarding the recent stock price correction in the semiconductor sector, he pointed out, "The fundamentals of the semiconductor industry have not been significantly damaged." He analyzed, "The recent sharp decline seems to reflect fatigue from the previous rise and a desire to realize some profits ahead of the vacation season. It can be interpreted as volatility arising from trading within a long-term upward trend." He added, "Recent remarks by President Joe Biden and Republican presidential candidate Donald Trump do not contain content that would cause a 40-50% stock price correction by affecting the industry's foundation. However, a correction of about 10% can occur for any reason," he advised.

Furthermore, No said that to confirm the sustainability of this semiconductor cycle, attention should be paid to TSMC's performance. He said, "TSMC appears to plan record-high investments in 2025. Since TSMC produces most server semiconductors used in AI data centers, we need to monitor whether TSMC's monthly sales and market outlook decline." He also added, "Changes in semiconductor supply chain policies and environmental regulations, which may occur alongside the U.S. presidential election, will also impact volatility."