[Insight & Opinion] Is the Memory Semiconductor 'Shortage' Sustainable?

Liquidity Crunch for Hyperscalers
Potential Decline in High Semiconductor Margins
Preemptive Risk Management Ahead of an Inevitable Market Cooldown

Since the inauguration of Governor Shin Hyunsong, the Bank of Korea has dramatically raised its forecast for South Korea's economic growth rate this year to 2.6%. This figure clearly surpasses the country's potential growth rate of 1.57%, as estimated by the Organisation for Economic Co-operation and Development (OECD). At the core of this upward revision lies a semiconductor export boom driven by the artificial intelligence (AI) frenzy. The Bank of Korea, wary of inflationary pressures, has also officially raised the possibility of a base interest rate hike in July. Amid this macroeconomic transition, it is necessary to critically examine, on three fronts, whether the memory semiconductor shortage and the stock market boom—both of which have supported the South Korean economy—can be sustained structurally.

First, the liquidity and cash flow of major global hyperscalers (large-scale data center operators) leading AI infrastructure investments are deteriorating rapidly. In 2022, despite a high interest rate environment, these companies demonstrated solid fundamentals based on massive cash reserves. However, with the recent prolongation of global interest rate hikes, the situation has reversed completely. The news that Google is proceeding with an enormous paid-in capital increase worth as much as $85 billion (about 130 trillion won) has sent shockwaves through the market. There is widespread speculation that Meta and Amazon, struggling under funding pressures, are also highly likely to join the wave of capital increases in the near future.

Second, as memory semiconductor suppliers expand their facility investments, the current high-margin structure may face risks of decline. Recently, leading memory companies, including SK hynix, have been ramping up substantial domestic and overseas investments across the board to meet strong market demand and maintain their leadership. Although long-term supply contracts covering the next three years have been sold out, the sharp surge in memory prices has led cash-strapped big tech firms to hesitate in signing purchase agreements. There is growing anticipation that Micron Technology, a latecomer, may cut prices slightly to increase its market share. If supply rises and buyers’ price resistance intensifies, downward revisions to the operating margins of memory semiconductor manufacturers such as SK hynix—which have recently hovered around the 70% range—appear inevitable.

Third, it is noteworthy that within the core ecosystem of the AI accelerator market, there is both technological advancement aimed at reducing memory dependence and the pursuit of latecomers. Under Nvidia’s graphics processing unit (GPU) monopoly, the explosive demand for memory chips has been fueled by a variety of high-bandwidth memory (HBM) supplements. Now, technological evolution is shifting toward overcoming the limitations of supply shortages. Nvidia, in order to maintain its monopolistic operating margins, has begun developing next-generation accelerator architectures that reduce memory capacity and dependence. This is based on the judgment that a structure excessively reliant on ultra-expensive memory cannot overcome cost resistance from big tech customers. Furthermore, with emerging suppliers in countries such as China accelerating their independent development of AI memory chips and accelerators despite U.S. technology restrictions, the monopoly-driven shortage ecosystem enjoyed by the three major memory companies could see their market share decline at any time.

SK hynix expanded its intraday gains, surpassing Samsung Electronics (common stock basis) to become the largest company by market capitalization on the KOSPI. This marks the first change in KOSPI's "king's seat" in 25 years and 7 months. According to the Korea Exchange on the 22nd, as of 12:51 p.m., SK hynix's market capitalization was recorded at 2084.6544 trillion won. This is 456.1 billion won more than Samsung Electronics' market capitalization (2084.1983 trillion won) at the same time. As a result, Samsung Electronics relinquished its top position in KOSPI market capitalization for the first time in about 25 years and 7 months. Photo by Yonhap News on the 22nd at the Hana Bank dealing room in Junggu, Seoul.

The AI supercycle is undeniably real. On June 22, Samsung Electronics, which had held the top spot in KOSPI market capitalization for 25 years and 7 months, ceded its "throne" to SK hynix. Based on common stock only, SK hynix recorded a market capitalization of 2,084.6544 trillion won, exceeding Samsung Electronics’ 2,084.1983 trillion won. While Samsung Electronics still maintains a significant lead if preferred shares (Samsung Electronics preferred shares · 184 trillion won) are included, many analysts note that this overtaking alone underscores the remarkable boom in memory semiconductors that has driven SK hynix’s surge. This also explains why, at Seoul National University, the contract-based departments run by the two companies are overwhelmingly more popular than most other science and engineering departments, excluding the medical school.

The current stock market boom, too, will inevitably be revised as the macroeconomic environment changes over time. Nothing falls forever, and nothing rises forever. It is time to face the structural unsustainability with clear eyes and proactively manage risks in preparation for the impending cooldown. I am concerned that the idea of curbing the rise in home prices in the semiconductor valley through tax increases may be a repetition of previously failed policies.

Professor Wonkyung Cho, Department of Economics, Sejong University

This content was produced with the assistance of AI translation services.