[Practical Finance] Is the 'Spring of Semiconductors' Coming... Buy Stocks or ETFs?

A researcher is showcasing an MPW test chip in the 12-inch semiconductor testbed cleanroom at the Daejeon Nano Convergence Technology Institute. It is forecasted that the global semiconductor shortage will continue until mid-next year. As the local industry in Gunnae, which is pursuing a semiconductor ecosystem advancement strategy, faces potential impacts from this trend, attention is focused on the situation, while various countries around the world are also rolling out their countermeasures. Our government is accelerating efforts to advance the semiconductor ecosystem. Through the 'K-Semiconductor Strategy Report,' the government envisions a leap to becoming a comprehensive semiconductor powerhouse by 2030, aiming to complete semiconductor localization through massive investments and tax incentives. Having achieved K-quarantine through COVID-19, South Korea is expected to proudly demonstrate the success of K-semiconductors in the global semiconductor supremacy competition. /Daejeon=Photo by Kang Jin-hyung aymsdream@

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The Korean stock market's sector to watch in 2024 is undoubtedly semiconductors. Expectations are high that the rebound in memory prices and demand driven by artificial intelligence (AI) will push stock prices upward. For investors currently experiencing losses or just breaking even with individual stocks like Samsung Electronics and SK Hynix, it is wise to 'hold' onto their shares. Those considering new investments in the semiconductor sector should also pay attention to semiconductor exchange-traded funds (ETFs), as ETFs investing in overseas semiconductor companies have outperformed individual stocks in terms of returns.

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The positive momentum in the semiconductor market began with rising memory prices. DRAM spot prices have increased for three consecutive months since October (+15.38% month-over-month). After peaking in 2021 and declining, prices hit a low in September last year and have since rebounded.

According to semiconductor market research firm DRAMeXchange, the average fixed transaction price (B2B price) of general-purpose DRAM products (PC-oriented 8Gb 2133MHz) in December last year rose 6.45% month-over-month to $1.65. This increase is about twice the growth rate of 3.33% recorded in November. NAND general-purpose products (memory cards and USB-oriented 128Gb MLC) also showed a rebound. Last month, the average fixed transaction price rose 6.02% month-over-month to $4.33, with the increase rate higher than the previous month’s 5.41%.

The rise in memory prices is driven by AI smartphones. With a large number of AI smartphones launching this year, expectations are growing that demand in the mobile semiconductor market will recover. According to market research firm Counterpoint Research, AI smartphone shipments are expected to surge from 47 million units in 2023 to 522 million units in 2027. The market share of AI smartphones in the global smartphone market is also projected to grow from 4% to 40% during the same period.

Due to the rebound in memory prices and the launch of AI smartphones, Samsung Electronics and SK Hynix are expected to enter a phase of profit growth. Reflecting this, the stock prices of both companies are breaking out of their trading ranges. In December last year (December 1 to December 28), Samsung Electronics’ stock price rose 9.0% from 72,000 KRW to 78,500 KRW. During the same period, SK Hynix’s stock price increased 6.7% from 132,600 KRW to 141,500 KRW.

Choi Yoo-jun, a researcher at Shinhan Investment Corp., said, "If the Galaxy S24 smartphone equipped with AI is unveiled on January 17, it could become the world’s first smartphone with on-device AI, focusing market expectations on Samsung Electronics." He added, "If semiconductor exports recover and AI-related momentum builds, Samsung Electronics’ price-to-earnings ratio (PER) has room to rebound."

SK Hynix has taken the lead in the HBM market. It is regarded as the most advanced in product development. Its next-generation product, HBM3E, has been exclusively supplied to Nvidia since June last year. Given Nvidia’s dominance as a global leader in the AI semiconductor market, SK Hynix’s exclusive supply is significant. Samsung Electronics plans to expand its HBM supply capacity by more than 2.5 times compared to last year to capture market demand.

Kim Dong-won, a researcher at KB Securities, explained, "The annual growth rate of HBM bit demand is expected to increase by 70% on average until 2027, which is 3.5 times higher than the DRAM growth rate (+20%). The HBM market in 2024 is expected to be dominated by a duopoly supply structure centered on SK Hynix and Samsung Electronics."

If you are currently invested in these two stocks, it is recommended to 'hold' them. Hwang Min-sung, a researcher at Samsung Securities, said, "Considering continuous supply adjustments and the ‘big hit’ effect from AI, both Samsung Electronics and SK Hynix have potential for stock price increases." He added, "If HBM shifts to oversupply and prices fall, this assessment would be incorrect, but at least in 2024, customers are unlikely to reduce HBM orders even if they build up inventory." He further explained, "Ultimately, the stock price is expected to be determined by the inventory of HBM carried over from 2024 and the corresponding HBM prices, depending on the economic conditions around 2025."

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Investment in semiconductor ETFs is also worth noting. The biggest advantage of ETFs is that investors can purchase major semiconductor stocks all at once. In particular, ETFs investing in overseas semiconductor companies have shown outstanding performance.

The most notable ETF among these is Mirae Asset Management’s ‘TIGER U.S. Philadelphia Semiconductor Nasdaq’. In December last year, it rose 12.7% from 12,915 KRW to 14,560 KRW. This ETF invests in global semiconductor companies such as Intel, AMD, Broadcom, Nvidia, TSMC, Micron, Qualcomm, and ASML. It covers detailed semiconductor sectors including foundry, fabless, semiconductor equipment, and memory.

A similar product is ‘Samsung KODEX U.S. Semiconductor MV’, which rose 9.3% during the same period. This ETF holds Nvidia as its largest component. Compared to the Mirae Asset product, the weightings of TSMC and ASML differ, and the total expense ratio is relatively lower.

Other ETFs with good performance include ‘Shinhan SOL Korean-style Global Semiconductor Active’ (+9.5%), ‘Samsung KODEX U.S. Semiconductor MV’ (+9.3%), and ‘ACE Global Semiconductor TOP4 Plus SOLACTIVE’ (+9.0%).

A representative from Korea Investment Trust Management explained, "Since ETFs are not investments in individual stocks, even if the memory market conditions worsen, profits can be made from fabless or foundry companies. Especially because the ETFs include the best-performing stocks in detailed semiconductor sectors, when the market rebounds, the returns are much higher than those of individual stocks."

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