Samsung Electronics and SK Hynix, once the pillars of South Korea's artificial-intelligence rally, have become emblematic of the market's sharp reversal. Over the past month, Samsung has shed roughly 27% of its value, while SK Hynix has plunged about 36%, as investors reassess memory pricing, competitive pressures from China, and hyperscaler AI budgets.
Friday's trading offered little respite: Samsung edged up 0.22%, but SK Hynix fell 4.88%, dragging the Kospi down 0.6%. The sell-off has been exacerbated by deleveraging and heavy short positioning, making the correction appear more severe than underlying fundamentals might justify.
Goldman Sachs sees a stronger, longer memory cycle
Goldman Sachs has taken a contrarian stance, reiterating its Overweight rating on Korean equities and maintaining a 12-month Kospi target of 12,000. The bank argues that investors are prematurely pricing in a downturn in the memory cycle.
“Our central case is that the memory cycle is likely to be stronger and last longer than previous ones,” Goldman analysts wrote in a note. They point to accelerating AI-compute demand and severe shortages as factors that could sustain chip prices and profitability for longer than the market expects.
While acknowledging risks around Big Tech capital expenditure, financing capacity, and competition, Goldman contends that current share prices already reflect a harsher outcome than those risks justify. This is particularly relevant after the Kospi's 22% decline in July, during which Samsung and SK Hynix—given their heavy weighting in the index—were sold off indiscriminately as investors reduced Korea exposure.
UBS sees physical memory market tightness
Goldman is not alone in its optimism. UBS has noted that the memory upcycle is “strengthening further,” citing record global memory sales of $74.6 billion in July. The bank expects DRAM contract prices to rise 32% in the third quarter and another 18% in the fourth quarter.
UBS forecasts DRAM demand to outpace supply through at least the second quarter of 2028. It also projects HBM demand to grow about 90% in 2026 and another 77% in 2027 as hyperscalers expand AI infrastructure. This outlook bodes well for SK Hynix, which William Blair analyst Sebastien Naji called the “memory leader for the AI era,” as reported by Barron's.
The contradiction is striking: shares are trading as if the cycle is turning, while forecasts still point to shortages and rising contract prices. This disconnect may present an opportunity for investors willing to look beyond the near-term volatility.
Market mechanics amplify the correction
The sell-off has been intensified by market mechanics. Goldman estimates that assets in Korean leveraged ETFs have plummeted from $53 billion at their June peak to $25 billion, while retail margin-loan balances have fallen from $25 billion to $19 billion. With investors cutting borrowed exposure and hedge funds reducing positions, Goldman says positioning is now “much cleaner.”
Data shows that leveraged ETFs tied to Samsung and SK Hynix collapsed from about $50 billion in late June to $17 billion last week. JPMorgan analysts believe the ETF unwind is complete and hedge-fund deleveraging is roughly 90% finished.
Short positioning adds another layer. Citi analyst David Chew told MarketWatch that short interest in Korean equities has reached a three-year high, leaving the market vulnerable to a squeeze if AI sentiment stabilizes. This dynamic could fuel a sharp rebound if positive catalysts emerge.
For investors, the key question is whether the recent decline represents a fundamental shift or a temporary overreaction. Goldman's call suggests the latter, but the risks around AI spending and competition remain. As always, thorough due diligence is essential.
This article is for informational purposes only and does not constitute financial advice.
