HONG KONG – Hedge funds are increasingly turning their attention to South Korea’s chipmakers, anticipating a surge in demand for high-end memory chips driven by advancements in artificial intelligence (AI) and substantial government investments.
Prominent hedge funds, including Britain’s Man Group, Singapore’s FengHe Fund Management, and Hong Kong’s CloudAlpha Capital Management and East Eagle Asset Management, are among those seeking AI-related opportunities in Asia. They are focusing on South Korean giants such as SK Hynix and Samsung Electronics, which have not yet seen the same rally as some other AI sector players.
“If we consider Nvidia the king of the AI story, then Hynix is the queen,” said Matt Hu, chief investment officer at FengHe, which has been increasing its holdings in Hynix and Samsung this year.
FengHe and other investors believe that while Nvidia’s value has tripled over the past year to exceed $3 trillion, stocks like Hynix have lagged behind more popular Asian AI companies such as Taiwan’s TSMC.
The spotlight is now shifting to South Korean chipmakers as technology firms race to secure high-bandwidth memory (HBM) chips, primarily produced by Hynix, Samsung, and U.S.-based Micron Technology. Hynix is a major supplier of advanced HBM memory chips to Nvidia. Hu estimates that Hynix derives a larger proportion of its revenue from Nvidia than TSMC does, yet Hynix trades at nine times its 12-month forward earnings compared to TSMC’s 23 times.
Several factors are boosting these shares, including the South Korean government’s 26 trillion won ($19 billion) support package for the chip industry and its new ‘Corporate Value-up Programme,’ aimed at improving shareholder returns.
The influx of hedge fund investments into South Korea’s AI sector contributed to the KOSPI index achieving its best month in seven months in June. South Korean stocks have attracted the strongest inflows among Asian emerging markets this year and their biggest inflows since 2008, according to LSEG data.
Despite concerns about a depreciating Korean won and restrictions on short-selling in the local market, hedge funds find the potential rewards of investing in South Korea outweigh the risks. The KOSPI is trading at 10 times 12-month forward earnings, compared to Taiwan’s 18 times and Japan’s 15 times.
Samsung and Hynix represent about 30% of the KOSPI’s market capitalization. Hynix shares have risen more than 70% this year, while Samsung’s shares are up only 12%, and the overall KOSPI nearly 9%.
In addition to HBM chips, a scarcity in the supply of broader memory chips has further strengthened South Korean suppliers. Samsung recently announced it expects a more than 15-fold increase in its second-quarter operating profit due to rising chip prices.
Sumant Wahi, a portfolio manager at Man Group focusing on technology stocks, anticipates a rise in the prices of traditional Dynamic Random Access Memory (DRAM) chips as well, due to the industry’s shift in capacity to manufacturing HBM chips. “There’s definitely an opportunity there,” he said.
Pierre Hoebrechts, head of macro research at East Eagle Asset Management, predicts that Samsung will catch up in the second half of the year after underperforming compared to TSMC.
The South Korean AI theme is expanding beyond chipmakers. Chris Wang, a portfolio manager at CloudAlpha Capital Management, has invested in HD Hyundai Electric, expecting the company to benefit from increased power consumption. Its shares have surged 333% since January.
“Korea has the potential to sell more semiconductor equipment, cooling systems, and even consumer electronics along with the growing AI ecosystem,” said Simon Woo, Asia-Pacific technology research coordinator at BofA Securities.
The ongoing Sino-U.S. technology war also ensures that China continues to rely on South Korea’s advanced memory chips, as Chinese chipmakers struggle to compete under U.S. export bans, Woo added.
