Samsung and SK Hynix Facing Risks as 'Warning Signs' Emerge: "Caution Needed on AI Investment Slowdown and U.S. Rate Hikes"

Record-Breaking Capital Expenditures by the Five Major Hyperscalers
Large-Scale Corporate Bond Issuances Amid Recent Deterioration in Cash Flow
Warning Signs: "Momentum Collapse Possible" if Interest Rates Rise

Since the beginning of the year, there has been mounting concern that the astronomical capital expenditures (CAPEX) of big tech companies—which have driven up the entire supply chain for artificial intelligence (AI) infrastructure, including semiconductors—could now become a drag on the market.

According to the financial investment industry on June 25, this year, the combined CAPEX of the five major U.S. hyperscalers—Amazon, Alphabet, Microsoft (MS), Meta, and Oracle—could reach as much as $795 billion (approximately KRW 1,225 trillion). Amazon is expected to spend $200 billion, Alphabet $180–190 billion, Microsoft $190 billion, Meta $125–145 billion, and Oracle $70 billion.

This year’s global stock market rally originated from the competition among these U.S. hyperscalers to lead in AI infrastructure. As they race to build AI data centers, demand has surged for chips and high-bandwidth memory (HBM), causing related stock prices to soar.

AI Rivalry Threatens Hyperscalers’ Cash Flow

The problem is that these companies are continuing to invest to the point where the ample cash generated by their cloud businesses is running dry. Jin Kyung Lee, a researcher at DB Financial Investment, explained, “Following Amazon, companies like Google and Microsoft have also reached a stage where they can no longer cover capital expenditures solely with their internal cash flow. The amount of capital spending excluding operating cash flow and net cash either converged to zero or turned positive at the end of last year’s quarters.”

An even greater source of concern is that a significant portion of this massive funding is being raised through debt. Once their internal cash supplies were depleted, hyperscalers turned to the corporate bond market. Last year, the combined amount of corporate bonds issued by the five hyperscalers exceeded $121 billion—more than four times the average of the previous five years. This year as well, Amazon issued $37 billion, Meta $25 billion, Alphabet $20 billion, and Oracle $25 billion in corporate bonds. Even Nvidia—the leading AI semiconductor company and the world’s largest by market capitalization—recently raised $25 billion through a corporate bond issuance.

Industry experts believe that the CAPEX burden of AI-related big tech companies could be a decisive factor in the direction of the stock market. Kyungbeom Ko, a researcher at Yuanta Securities, commented, “Since the second half of last year, the CAPEX level of AI hyperscalers has been extremely high, and concerns about potential depletion of cash flow have emerged. Looking back, Intel’s downward revision of its PC sales guidance in September 2000 became a major turning point in the dot-com bubble, as it signaled a structural slowdown in PC demand and the consumer market. Similarly, whether the current AI momentum collapses will depend on the sustainability of hyperscalers’ CAPEX investments.”

Yeonju Cho, a researcher at NH Investment & Securities, said, “With hyperscalers’ free cash flow expected to be negative this year, continued news of corporate bond issuances and paid-in capital increases is acting as a factor that restricts the potential upside for AI CAPEX profit recovery.”

Interest Rates Expected to Rise—A Key Investment Consideration

To make matters worse, the outlook for interest rates is not favorable. Hawkish sentiments (favoring monetary tightening) are growing within the U.S. Federal Reserve (Fed), reigniting concerns about further tightening or rate hikes within the year. On June 22 (local time), Bank of America (BofA) released a report predicting that the Fed might raise rates three times this year—in September, October, and December. BofA explained, “Based on this month’s Federal Open Market Committee (FOMC) statement and Chairman Kevin Warsh’s remarks, the Fed’s policy stance appears to be much more hawkish than we anticipated.”

Interest rate hikes increase borrowing costs for big tech companies that are raising funds for AI investments via corporate bonds. This leads to higher interest expenses companies must shoulder, which can result in lower net profits. Furthermore, if big tech–issued bonds flood the limited bond market, bond prices could fall and yields rise, further increasing funding costs across the board.

With big tech companies leading the global stock market and expanding their capital raising through corporate bonds, Wall Street is now advising tech investors to pay close attention to interest rates. Peter Boockvar, Chief Investment Officer (CIO) at OnePoint BFG Wealth Partners, said, “Now, even tech stock investors need to listen to what Fed Chairman Kevin Warsh says, monitor inflation indicators, and pay attention to how the bond market responds.”

However, some believe that interest rates have not yet had a significant impact on AI investment. Nokil Noh, a researcher at Shinhan Investment Corp., analyzed, “Whether rising rates will directly curtail AI CAPEX or simply prompt stricter scrutiny of capital efficiency will result in completely different strategies; current data points more toward the latter. Interest rates are unlikely to be a variable that halts major hyperscalers’ CAPEX. However, they do make investors more stringent about when investments will translate into sales and free cash flow.”

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