[Apartment] "Still Samsung Electronics?" The Answer Lies in Nvidia (Park Seik Part 2)

by Song Yunjung

by Lee Kyungdo

by Lee Miri

Published 15 Oct.2023 11:53(KST)

Highlights

I can't make money with Samsung Electronics or SK Hynix? Then you shouldn't invest in other stocks either! If you think about how much I use e-commerce and how often I replace my phone, you should know how to make money with semiconductors! Samsung Electronics and SK Hynix correspond to the core subjects like Korean, English, and Math in the college entrance exam. Master these first, and then move on to more difficult ones!

Q. The Value and Outlook of Superconductors

Shin Ji-eun: Let's start the second part of Economic Hotspot with CEO Park Se-ik. Along with secondary batteries, the sector I've been paying attention to recently is superconductor-related stocks. Are you also thinking about the outlook or value of superconductors?

Park Se-ik: We know a lot about 'where superconductors can be used,' but we don't know who, when, and how much will be mass-produced.

Shin Ji-eun: That part isn't visible.

Park Se-ik: So how do you invest in such stocks? The second case of losing money is when a new growth industry is born, and you must be certain that 'this company will see a sharp increase in sales and start making profits exactly 2 or 3 years later.' If you look back to 2021, there was a flood of talk about metaverse, NFTs, and game companies doing P2E. Facebook even changed its name to Meta, and everyone thought, 'Wow, the metaverse world is coming.' But these days, no one talks about it much.

Shin Ji-eun: It's quiet.

Park Se-ik: Because people got stuck with it. It hurts, so they avoid it. That's why they don't talk about it, but I believe the metaverse world is coming. I don't think Zuckerberg changed the name just for fun. We use the term monetization.

Monetization

The act or process of converting existing traffic to a specific website into revenue

How do you monetize? Even if you talked about the metaverse two years ago, no concrete picture came to mind. Especially with P2E, 'Play to Earn,' meaning 'I enter the game and make money while playing.' But game companies like Wemade and NCSoft make money because gamers spend money. So how do gamers make money while playing? If gamers make money, do game companies not make money? It felt like a casino where some win and some lose. No matter how much I looked into P2E, no clear picture emerged. So should you not do it? It's not that you don't do it; you shouldn't do it. Nevertheless, ETFs related to metaverse came out at that time, just like secondary battery ETFs recently. Such ETFs flood the market at the peak. When ETFs come out, fund managers buy stocks aggressively with the money flowing into the ETF without valuation. This creates the final overshooting in demand. Such new growth industries must have a clear picture of which company will make profits within 3 years. If you can't see that, you should never invest. They call it the dot-com bubble. At the end of 1999, Amazon dropped 95% in just a year and a half. Recently, after COVID-19 in 2020, stocks like Zoom Video and Teladoc, bought by Cathie Wood, were thought to be huge growth stocks, but when I looked at those companies, I wondered, 'Will they make money in 3 years?' Those stocks dropped 80-90%.

The superconductor market will definitely come. It will come, but when? Like the dot-com bubble, it rose sharply, then people said, 'What? No profits?' and it crashed. After the crash, the third wave of rise begins, and that's when you make money. When the third wave starts, you see 'It was Naver,' in 2000, 'I thought it was Daum, but it was Naver,' in 1999, 'I thought it was Yahoo, but it was Google.' The winners are sorted out, and stock prices rise 100 to 1,000 times. So don't worry that if you miss superconductors now, you'll never get a chance again.

Q. Samsung Electronics Outlook for the Second Half, Is 100,000 Won Possible?

Shin Ji-eun: Next, I'd like to ask about Samsung Electronics' outlook for the second half. I don't understand why everyone talks about 100,000 won for Samsung Electronics.

Park Se-ik: But it's a very heartfelt question.

Shin Ji-eun: Yes, I'm actually waiting for it too.

Park Se-ik: Those asking 'Will Samsung Electronics reach 100,000 won?' are all people who bought at 90,000 won, right? I feel a sense of regret and desperation in the question. Those asking 'Will it reach 80,000 won?' are people stuck at 70,000 won. From that perspective, the answer to 'Will it reach 100,000 won?' is yes, it will. But when is important. Looking at Samsung Electronics' 20-year chart, the stock price breaks previous highs every 3 to 3.5 years at most. Usually, it breaks previous highs every 2 to 3 years, but this time there was an overshooting by individual investors. That overshooting is being digested now. There were days when individuals sold 10 million shares in a day. Such supply is being absorbed. So I say Samsung Electronics will reach 100,000 won. The last peak of 96,800 won was on January 16, 2021, so it's already been 3 years: 2021, 2022, 2023.

Shin Ji-eun: The time is coming.

Park Se-ik: When investing in stocks or real estate, you must invest in what you know well. Let me ask you a question about SK Hynix, a pure semiconductor company. How many times do you think Hynix's stock price dropped in the last 15 years? The answer is four times.

Shin Ji-eun: Four times?

Park Se-ik: The most recent was last year, 2022. Then in 2018, and once in 2015. The last one was in 2011. From 2009 to 2023, it only dropped four times, and in 2011, it only dropped about 8%. The biggest drop was last year. In 2018, it dropped about 16%, and in 2015, it dropped about 30%. What I want to say is that Hynix is a good stock that only dropped four times in 15 years. Even a few hundred billion won earner in our industry told me, 'Se-ik, I have a record of 220 entries and 218 losses and 2 draws in Hynix.' Even a big earner says trading Hynix is difficult. The years Hynix dropped were the years the company made the most profit. In 2018, when profits were highest, it dropped 41% from the peak. This time, it dropped almost 50% from the peak, from 150,500 won to 70,000 won. Why does it drop so much from the peak? Because the semiconductor industry is very volatile. So cyclical stocks like Hynix, steel, and chemicals should be sold when profits are high and PER is only 3 times. Korea is a semiconductor republic, but due to semiconductors, the trade balance deficit occurred recently, and when talks of a second IMF arise, that's when you should buy. Samsung Electronics is the same. It keeps going up, but it has dropped about five times in between.

Samsung Electronics dropped 77% in 2009, but was positive in 2010 and 2011, and rose 44% in 2012. The five times it dropped were: last year, down 29%; in 2021, Hynix was positive but Samsung was down 3%; in 2018, down 24%; and three consecutive years in 2013, 2014, and 2015, down 10%, 3%, and 5%, respectively, which are not big drops.

Shin Ji-eun: That's less than I thought.

Park Se-ik: Less than you think. So why did even experts lose money trading Hynix? Because it's hard to trade. So for Hynix and Samsung Electronics, you should invest.

Shin Ji-eun: You should invest.

Park Se-ik: You should invest, but when? The appropriate price level for cyclical companies like Hynix and Samsung Electronics is not based on PER but on PBR.

PER, PBR

PER: Price-to-Earnings Ratio, stock price divided by earnings per share
PBR: Price-to-Book Ratio, stock price divided by book value per share

Compared to net asset price, Hynix ranges from 0.9 to 1.6, Samsung Electronics from 1.1 to 2.1. You divide by 2, so for Samsung Electronics, you buy in installments when PBR is below 1.6. It's investing, so you buy in installments. Currently, it's 1.4, still around 70,000 won. If profits increase next year, net assets will increase, and PBR will drop further. So remember that Samsung Electronics and Hynix are stocks that have not dropped much and have an upward trend over 15 years. Second, let me explain why Samsung Electronics can reach 100,000 won.

Looking at Korea's steel industry, prices fluctuate back and forth because suppliers keep increasing. Steel and chemical industries see global population growth, so demand increases, but suppliers increase more, causing long-term price fluctuations. There are huge suppliers like Baoshan Steel in China, Manhua Chemical in China, and companies like Mittal Steel in India. Steel prices have been declining. Recently, lithium prices rose near previous highs. What about semiconductors? In the 1990s, there were 27 suppliers, but now only three memory semiconductor suppliers remain.

Shin Ji-eun: It's already consolidated a lot.

Park Se-ik: It's consolidated. China tried to enter the semiconductor market but was blocked by Trump and Biden.

Shin Ji-eun: Right.

Park Se-ik: They can't enter. So since semiconductor suppliers are fixed, you only need to look at demand. Semiconductor demand comes from three areas: PCs including laptops, mobile devices, and data centers. When these three sectors undergo replacement cycles, semiconductor stock prices rise and fall. Historically, there was only semiconductors, but with smartphones, a huge new semiconductor demand was created. Among these three, PC demand is the smallest now.

Shin Ji-eun: PC was bigger in the past.

Park Se-ik: It was much bigger. But now PC is the weakest. Mobile emerged. We thought it was just personal computers and phones, but with e-commerce and cloud computing, data centers grew massively. Data centers used a lot of memory, creating a new semiconductor cycle in 2017 and 2018. Mobile was one level-up, then data centers another. If no new demand is created, prices will fluctuate at this level. We expected autonomous driving. When it hit 96,000 won, people said, 'Autonomous driving! A huge new technology!'

Shin Ji-eun: Another level-up.

Park Se-ik: Analysts wrote about a super cycle. But autonomous driving isn't that easy. Recently, ChatGPT emerged, and people wondered, 'What is this?' Generative AI. I said a new revolution happened, and monetization is important. Naver announced recently. Naver signed contracts with Samsung Electronics and Smilegate, selling these technologies to such companies.

Shin Ji-eun: Signs are showing.

Park Se-ik: Right. So AI has now been added to the big semiconductor demand. This is not a distant future; AI is here. Looking back five years to 2017 and 2018, when data centers were booming, Nvidia's stock price soared. In 2016, Nvidia's stock rose 223%.

Shin Ji-eun: It already rose once then.

Park Se-ik: In 2017, it rose 81%, but in 2018, it dropped 31%. Samsung Electronics rose 43% in 2016 and 41% in 2017, but Nvidia rose 223% and 81%. New demand made Nvidia rise first. So when deciding whether to buy Samsung Electronics now, look at Nvidia.

Shin Ji-eun: What about Nvidia now?

Park Se-ik: It hit a high of $350, dropped to $130, then went up to $500. It rose 189% this year. By looking at Nvidia, you can see whether Samsung Electronics will break previous highs or stay in a box range. Nvidia broke previous highs easily. This is important: Nvidia is the bellwether of the semiconductor sector. In English, bellwether means the lead sheep wearing a bell in a flock. Nvidia is the leader. Then who is the deputy? The world's number one semiconductor equipment company, Applied Materials. Applied Materials' stock is near its previous high. You can look up AMAT later. It reached its previous high. Next is TSMC, which manufactures Nvidia's GPUs. Then come memory semiconductor companies like Samsung Electronics, SK Hynix, and Micron in that order. Therefore, by watching Nvidia and AMAT's stock prices, Samsung Electronics might reach 90,000 won next year and possibly 100,000 won.

Shin Ji-eun: You mentioned specific stocks to refer to. So if you're curious about Samsung Electronics' stock price, you should also check Nvidia and Applied Materials.

Park Se-ik: Earlier, I mentioned two cases where people lose money in stocks, but it's important not to lose money.

Shin Ji-eun: Right.

Park Se-ik: It's important not to lose money. Among wealthy people and asset holders around us, even famous YouTubers with millions of subscribers say they all hold Samsung Electronics. They know how to become wealthy. So I said earlier, if you can't make money with Samsung Electronics or SK Hynix, you shouldn't invest in other stocks either. Even if you know about ASML in the Netherlands that makes EUV lithography equipment, if you don't invest in semiconductors, it feels unrelated. But semiconductors are used in our daily lives.

Shin Ji-eun: Right.

Park Se-ik: You can confirm it. Think about how much you use e-commerce and how often you replace your phone. You should know how to make money with semiconductors. So I say Samsung Electronics and SK Hynix correspond to core subjects like Korean, English, and Math in the college entrance exam. Master these first, then move on to more difficult ones. The difficult ones mean when superconductors come and people get excited, you sell and exit at that level. If you haven't mastered the basics, don't try other things.