(July 7): Asian tech stocks slumped as investors used Samsung Electronics Co’s results to lock in profits on a stellar year-to-date chip rally, rotating into unloved sectors with cheaper valuations less prone to earnings shocks.
Quarterly profit at the world’s largest memory chipmaker surged 19-fold on booming artificial intelligence (AI) demand, but was just 6% above analyst estimates. Its shares slid as much as 7.9% in Seoul, dragging down peers including South Korea’s SK Hynix Inc and Japan’s Kioxia Holdings Corp. An MSCI Inc gauge of technology stocks dropped as much as 2.7% while financial and consumer shares rose.
The moves provide further evidence that investors are becoming more sceptical on the AI boom after massive gains. Daily headlines on capacity additions, technology delays and rising debt levels that barely raised an eyebrow over the past few years are now seen as reasons to dump tech shares.
“The ‘sell the news’ dynamic was in play today — investors had extremely high expectations baked in,” said Tim Waterer, chief market analyst at KCM Trade. “Even strong results aren’t enough to satisfy the market when valuations are stretched and rotation is well and truly underway.”
Memory and storage stocks have been among the hottest trades this year, with Kioxia’s 600% gain topping a Bloomberg gauge of Asian chipmakers. While demand has soared, the market is still waiting to see if the boom will be followed by the typical bust or if AI is creating a longer lasting “supercycle”.
See also: Samsung’s soaring profit fails to impress after AI chip rally
Samsung’s results “reinforce confidence in sustained AI-related demand, continued resilience in memory pricing and a constructive outlook for the industry over the medium to longer term”, said Albert Yong, managing partner at hedge fund Petra Capital Management. That said, “investors might have already priced in solid results and are increasingly focused on the longer-term trajectory of the memory cycle”.
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