Samsung and SK Hynix Plummeted Ahead of Earnings Reports: News from China Fueled Investor Fears

Shares of the two largest memory chip suppliers—South Korea’s Samsung Electronics and SK Hynix—plummeted after the sell-off in U.S. chipmakers’ stocks spread to Asia. A leak regarding the launch of mass production of chip-making equipment in China provided further cause for concern in the market. Investors fear that rising memory prices will force Samsung and SK Hynix’s customers to seek cheaper alternatives, while China’s technological advances will intensify competition.

During trading in Seoul on July 28, Samsung Electronics shares fell 13.4%, while shares of SK Hynix, a key supplier to Nvidia, dropped 14.7%. South Korea’s Kospi stock index lost nearly 11%. Due to high volatility, the Korea Exchange once again triggered its automatic trading halt mechanism, according to the local Maeil Business newspaper. In just over a month, SK Hynix lost $570 billion in market capitalization and went from being one of the most popular bets on artificial intelligence to one of the most controversial holdings in investment portfolios, Bloomberg notes.

The MSCI Asia Pacific Index fell to its lowest level since May. Stock indices in Japan and Taiwan dropped by more than 3%, with technology companies leading the decline across the board. Nasdaq 100 futures were down nearly 1%—a sign that the downturn in the tech sector is set to continue, according to Bloomberg.

The sell-off on Asian stock exchanges was preceded by a slump among U.S. chipmakers: the PHLX Semiconductor sector index fell for the third consecutive day and closed at its lowest level since May 19. SK Hynix American Depositary Receipts (ADRs) fell 7.5% and ended trading at $143—$6 below their record IPO price.

According to The Information, a state-backed company in China has launched mass production of lithography equipment for chip manufacturing. This has raised concerns among investors that China is moving toward technological self-sufficiency in semiconductors faster than expected, Bloomberg reports.

In addition, on July 27, Chinese chipmaker CXMT closed its first day of trading with a more than fivefold increase in its share price, becoming the top company by market capitalization among mainland China firms (excluding Hong Kong). The frenzied demand for CXMT shares was driven by a shortage of memory chips for AI and demonstrates Beijing’s success in building its own artificial intelligence supply chain, one that is shielded from U.S. export restrictions on key technologies, the Financial Times reported.

Samsung and SK Hynix are set to report their quarterly results this week. SK Hynix is expected to post another record quarterly profit as the AI boom continues to drive up chip prices. But even beating forecasts no longer guarantees a rise in the stock price due to high expectations, warned Pepperstone strategist Diling Wu.

Han Ji-yeon of Kiwoom Securities believes the sell-off in Korean stocks is excessive. “There has not yet been a real deterioration in fundamentals, including corporate earnings. At the same time, stock valuations, the relative strength index (RSI), and price volatility indicate that the market is oversold,” Maeil Business quotes the analyst as saying.

Sean O of NH Investment & Securities called SK Hynix shares “extremely attractive for buying,” according to Bloomberg. The analyst pointed to the chipmaker’s relatively low valuation and the decline in the volume of shares purchased by Korean retail investors using borrowed funds. Ahead of the remaining earnings reports from the U.S. tech sector, investors are reducing their overall exposure, “if it wasn’t already low,” he added.

This article was AI-translated and verified by a human editor