Goldman Sachs: AI Memory Chip Demand Underestimated, Korean Stocks Could Rally 80%
TREE NEWS reports: Goldman Sachs’ chief Asia-Pacific equity strategist Timothy Moe has reiterated a strongly bullish stance on South Korean equities, arguing that the market is severely underestimating the duration of the AI-driven memory chip demand cycle. Moe maintains his KOSPI target of 12,000 points, implying nearly 80% upside from current levels.
The call stands in stark contrast to recent market performance. The KOSPI has fallen 27% from its June high, despite robust earnings from chip giants Samsung Electronics and SK Hynix. Moe’s target suggests that at current valuations, investors are offered a significant margin of safety if his earnings forecasts materialize.
Earnings Cycle Underestimated
Moe’s core thesis is that the market systematically underestimates the persistence of the earnings cycle for Korean memory chip makers. He projects KOSPI component earnings to grow roughly 360% this year, slowing to about 35% by 2027. However, he emphasizes that the eventual deceleration is already priced in and does not justify the current share price weakness.
The global data center construction race is the key driver. Moe points to severe shortages in storage and memory chips due to massive data center expansion, pushing prices higher, with supply-demand imbalances expected to intensify by 2027. He notes that hyperscale cloud vendors ‘must keep investing even if they are not profitable for the time being,’ and the explosive demand for computing power is memory-intensive, directly benefiting memory chip manufacturers.
Valuation at Historic Lows
From a valuation perspective, Moe believes the KOSPI is pricing in excessive pessimism. His 12,000 target is based on a forward P/E of 7.5x, while the KOSPI currently trades at just 5.3x forward earnings—roughly half its seven-year average. He argues that if Korean companies deliver on earnings, the target ‘is not as aggressive as it looks.’
Moe acknowledges risks, including competition from rivals like ChangXin Memory Technologies and potential US political resistance to data center expansion. Still, he believes these risks are insufficient to undermine the fundamental advantages of advanced memory chip makers over the coming years. AI infrastructure investment’s structural demand will dominate, and Korean chip leaders’ technological moats in HBM and other advanced processes will keep them beneficiaries.
Key Takeaways for Investors
- Earnings over narrative: Focus on the actual earnings delivery of Korean chipmakers rather than short-term price action.
- Valuation cushion: With KOSPI at half its historical forward P/E, the risk-reward appears skewed to the upside if earnings hold.
- Watch capex signals: US tech capex forecasts (now >$1.2T for next year) are a leading indicator for memory demand.
- Monitor risks: Geopolitical tensions, competition from Chinese memory makers, and potential US policy pushback on data centers are key variables.
