Goldman Sachs: Demand for AI memory chips is underestimated; South Korean stocks still have 80% upside potential.

Timothy Moe, chief equity strategist for Asia Pacific at Goldman Sachs, maintains a strong bullish stance on the South Korean stock market, believing that the market has severely underestimated the duration of the AI-driven demand cycle for memory chips. He believes the benchmark South Korean stock index, KOSPI, still has nearly 80% upside potential and maintains his target price of 12,000 points for KOSPI.

According to Bloomberg, Moe said in an interview last Friday that "the market has underestimated the duration of this earnings cycle" and expects capital expenditures by major U.S. tech companies to exceed $1.2 trillion next year, far higher than the previous forecast of $800 billion.

This optimistic assessment stands in stark contrast to recent market trends. KOSPI has fallen 27% since its all-time high in June, and despite strong earnings reports from chip giants like Samsung Electronics and SK Hynix, their share prices have failed to improve. Moe's target price implies that, if its earnings forecasts materialize, the current valuation level will offer investors a significant margin of safety.

The profit cycle is underestimated; chip demand is expected to continue to rise.

Moe's core argument is that the market systematically underestimates the sustainability of the profit cycle for South Korean memory chip companies. He predicts that KOSPI constituent stocks will see profit growth of approximately 360% this year, slowing to about 35% in 2027, but emphasizes that the market has already fully priced in the eventual slowdown in profit growth, and this is not a reasonable explanation for the current weak stock prices.

The global race to build data centers is the core driving force behind this assessment. Moe points out that the massive expansion of data centers has led to a severe shortage of storage and memory chips, driving up chip prices, and this supply-demand imbalance is expected to worsen further in 2027. He states that hyperscale cloud computing vendors "must continue to invest even if they cannot profit in the short term," and the surge in computing power demand is extremely intensive in memory consumption, which will directly benefit storage chip manufacturers.

Valuations are at historically low levels, and the target price level has support.

From a valuation perspective, Moe believes that the current pricing of KOSPI fully reflects pessimistic expectations and is even excessively discounted. His target of 12,000 points is based on a forward P/E ratio of 7.5, while KOSPI is currently trading at only a forward P/E ratio of 5.3, about half of the average of the past seven years.

Moe stated that if South Korean companies can achieve their profit forecasts, the 12,000-point target is "not as aggressive as it seems." This target was already one of the most aggressive predictions in the market when it was set three months ago, but Moe clearly stated that he will continue to uphold this judgment, based on the core logic of the actual ability to realize profits.

Moe did not shy away from potential risks. He acknowledged threats from competitors, including the rise of companies like Changxin Memory, and potential political resistance in the US to large-scale data center expansion, all of which pose uncertainties. Nevertheless, he believes these risks are insufficient to shake the fundamental advantages of advanced memory chip manufacturers in the coming years. In his view, the structural demand for AI infrastructure investment will continue to dominate the industry, and the technological barriers of leading South Korean chip companies in advanced process technologies such as high-bandwidth memory will allow them to continue to benefit from this wave of demand.

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