Goldman Sachs: Demand for AI storage chips is underestimated, South Korean stock market still has 80% upside potential

Leading Korean chip enterprises possess technological barriers in advanced processes such as high-bandwidth memory, and will continue to benefit from the current wave of AI-driven demand.

Article Author: Bloomberg

Article Translator: Zhao Ying

Goldman Sachs Asia Pacific Chief Equity Strategist Timothy Moe maintains a strongly bullish stance on the Korean stock market, believing the market has significantly underestimated the duration of the AI-driven memory chip demand cycle. He states that Korea’s benchmark index KOSPI still has nearly 80% upside potential and keeps the KOSPI target level at 12,000 points unchanged.

According to Bloomberg, Moe stated in an interview last Friday, "The market underestimates the duration of this profit cycle," and he expects that capital expenditure by major US tech companies next year will exceed $1.2 trillion, far higher than the previously forecast $800 billion.

This optimistic assessment stands in stark contrast to recent market trends. Since the historic high in June, KOSPI has dropped by a combined 27%. Chip giants such as Samsung Electronics and SK Hynix have successively posted robust results, but these have failed to significantly boost share prices. Moe's target means that if his profit forecasts are fulfilled, current valuation levels will provide investors with a substantial margin of safety.

The Profit Cycle Is Underestimated; Chip Demand Expected to Heat Up

Moe’s core argument is that the market systematically underestimates the sustainability of profit cycles for Korean memory chip companies. He expects KOSPI component earnings growth this year to be around 360%, slowing to about 35% in 2027, but stresses that the eventual slowdown in profit growth has already been fully digested by the market and is not a reasonable explanation for current weak share prices.

The global data center construction race is the main driving force behind this view.Moe points out that large-scale data center expansion has already led to severe shortages in storage and memory chips, pushing chip prices consistently higher. This supply-demand imbalance is expected to intensify further by 2027. He states that hyperscale cloud providers "must continue to invest, even if it is temporarily unprofitable," and the explosion in computing power demand is highly memory-intensive, directly benefiting memory chip manufacturers.

Valuations at Historic Lows; Target Level Supported

From a valuation perspective, Moe believes the current KOSPI pricing already fully reflects pessimism, and may even be excessively discounted. His 12,000-point target is based on a forecast price-to-earnings ratio of 7.5, whereas KOSPI is currently trading at only 5.3 times forward earnings, about half the average over the past seven years.

Moe states that if Korean companies can achieve their profit forecasts, the 12,000-point target "is not as aggressive as it appears."This target was already one of the most aggressive on the market when set three months ago, but Moe makes it clear he will continue to hold this view, with the core logic relying on the actual fulfillment of profits.

Moe does not avoid potential risks. He acknowledges threats from competitors such as the rise of companies like CXMT, as well as possible political resistance within the United States to the mass expansion of data centers—all of which are sources of uncertainty. Nevertheless, he believes the above risks are insufficient to shake the fundamental advantages of advanced memory chip manufacturers in the coming years. In his view, structural demand for AI infrastructure investment will continue to drive the industry, and leading Korean chip enterprises, with technological barriers in advanced process areas such as high-bandwidth memory, will continue to benefit from this wave of demand.