A forecast was issued that volatility in semiconductor stocks will continue as concerns over the profitability of artificial intelligence (AI) persist. The advice is to wait until semiconductor companies' earnings resolve these AI profitability concerns.
Kim Jang-yeol, Head of Research Center at Unistory Asset Management, said in an interview with MoneyToday's securities-specialized YouTube channel 'Bukkumi - Ants Dreaming of Wealth', "If semiconductor stock earnings for the fourth quarter this year and the first and second quarters next year continue to come in above expectations, the negative scenario will gradually subside."
※The full interview video can be viewed on the YouTube channel 'Bukkumi - Ants Dreaming of Wealth'.
Q. SK hynix and Samsung Electronics have released their third-quarter earnings and shareholder return policies. As an investor, what aspects of this announcement should be noted?
▶The content of the earnings release is impeccable. SK hynix's third-quarter operating profit consensus estimate was around 7.7 trillion won, but SK hynix recorded an operating profit of 8.3 trillion won. Additionally, they announced a second shareholder return policy. Including the previous shareholder return plan, they intend to execute a total of 100 trillion won in shareholder returns this year. I believe SK hynix has done everything it can. In the case of Samsung Electronics, despite originally low expectations for shareholder returns, they did not announce share buybacks and cancellations this time. This led to disappointment and a sharp drop in the stock price. The issue is that doubts regarding big tech investments and AI emerged, causing the stock prices of SK hynix and Samsung Electronics to fall on the 30th of last month.
Q. Do you believe concerns over AI profitability will continue?
▶It seems they will continue. Recently, companies engaged in cloud service businesses such as Amazon, Microsoft, and Alphabet released their earnings. For AI to succeed, extensive use of data center clouds is required. Therefore, the investment plans and cash flows of these three big tech companies are important. All three companies had decent overall results. However, free cash flow (FCF) was the issue. While it was expected that Alphabet's and Amazon's third-quarter FCF would be negative, the magnitude of the negative figure was larger than anticipated. Only Microsoft had positive FCF. Consequently, the stock prices of Alphabet and Amazon fell. Ultimately, the market seems worried about what will happen if FCF continues to be negative due to funding issues. Also, Microsoft issued $25 billion in corporate bonds. This is the first time Microsoft has issued corporate bonds in nine years.
Q. The fact that Microsoft issued corporate bonds to invest in its cloud business could also be seen as indicating a high likelihood of success for the business. Why does the market continue to interpret this negatively?
▶The story changes if there is a premise that future AI demand may be an illusion. Of course, there is no definitive evidence that future AI demand is an illusion. Those who view AI demand as an illusion argue that companies other than top S&P 500 constituents, i.e., general companies, are not enjoying productivity gains from AI. Ultimately, AI needs to spread widely. Therefore, while AI is indeed useful, there are concerns that a "chasm" (temporary stagnation in demand) may appear after those who can utilize it have already done so. This is why there is concern about whether semiconductor earnings can sustainably maintain their current level.
Q. It is still unknown whether an AI chasm will occur or if AI will grow. So, could semiconductor stocks continue to show volatility in response to the AI profitability controversy going forward?
▶Yes. If semiconductor stock earnings for the fourth quarter this year and the first and second quarters next year continue to exceed market expectations, the atmosphere may shift from a negative scenario to "AI demand is stronger than expected." Ultimately, one must wait until earnings are confirmed. In particular, it is important for AI model companies like Anthropic to demonstrate how strong actual demand is. However, I believe that until doubts about demand are completely resolved, a battle of time and noise may continue.
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