"KOSPI Undervalued, Heading for 12,000... This Brokerage Bets on Memory Boom"

Goldman Sachs Maintains 12,000 KOSPI Target
Memory Market Expected to Benefit as Chip Shortage Worsens Next Year

Goldman Sachs has maintained its bullish outlook on the Korean stock market. Despite heightened volatility in global equity markets, it has not lowered its KOSPI target. Although the KOSPI has experienced a significant correction since its peak in June, the investment bank judges that the boom in memory semiconductors driven by increased investment in artificial intelligence (AI) data centers is likely to last longer than market expectations. In particular, Goldman Sachs analyzed that, considering the earnings growth of the Korean stock market and its relatively low valuation, the existing KOSPI target of 12,000 remains well within reach.

On the 7th, the KOSPI surged more than 4.6% to close, with the status board at Hana Bank's dealing room in Jung-gu, Seoul displaying the KOSPI, KOSDAQ, USD/KRW exchange rate, and more. Photo by Yonhap News

Goldman Sachs: "AI Memory Boom Undervalued"

According to Bloomberg News on September 7, Timothy Moe, Chief Asia-Pacific Equity Strategist at Goldman Sachs, said in a recent interview that the KOSPI target of 12,000 remains intact. He stated, "We are still maintaining our position. This is based on the belief that earnings will support it."

Earlier in June, Goldman Sachs had sharply raised its KOSPI target from the previous 9,000 to 12,000. Even after the Korean stock market underwent a sharp correction, it did not lower its target. Moe explained, "The market is underestimating the duration of this earnings cycle."

The core underpinning Goldman Sachs' optimism is memory semiconductors. With global competition to build AI data centers intensifying, demand for high bandwidth memory (HBM) and other memory and storage semiconductors is rapidly increasing, yet production capacity is deemed insufficient to keep up.

"Memory Shortage Expected to Worsen Next Year"

Goldman Sachs especially focused on increased capital expenditure by major U.S. tech companies. The firm expects that next year, U.S. big tech capital expenditures will rise from the existing USD 800 billion to around USD 1.2 trillion, forecasting that the fierce competition to invest in data centers will sustain strong memory demand over an extended period.

Image to aid understanding of the article. The Asia Business Daily DB

Moe commented, "Hyperscalers are in a position where they must keep spending, even if they do not make profits," adding, "This is good for memory because it will drive computing demand that requires a huge amount of memory."

This perspective is in contrast to the prevailing "AI peak-out" sentiment spreading in the market. While doubts are growing over how long the massive AI investments by big tech will continue, Goldman Sachs believes the very demand for memory needed for data center expansion will remain a key driver of future results for a considerable period of time.

Goldman Sachs estimates earnings growth for KOSPI-listed companies this year at approximately 360%. While it expects the growth rate to slow to 35% next year, it judged that this moderation has already been largely priced in by the market.

The low valuation of the Korean stock market was also cited as a reason for its bullish outlook. Goldman Sachs calculated the KOSPI 12,000 target based on a 12-month forward price-to-earnings ratio (PER) of 7.5 times. The current forward PER of the KOSPI is about 5.3, which is roughly half the average of the past seven years. If corporate earnings meet forecasts, there is ample room for a valuation re-rating of the index.

Chinese Memory and U.S. Political Risks Remain Concerns

However, Goldman Sachs pointed to the expansion of production by memory competitors such as China’s Changxin Memory Technologies (CXMT), as well as potential political backlash surrounding data center construction in the United States, as key variables to watch.

CXMT stock photo. Photo by Reuters and Yonhap News Agency

Despite these risks, the firm expects that, for several years ahead, structural factors such as surging AI demand and ongoing supply constraints will continue to create a favorable environment for advanced memory semiconductor companies. Moe stressed, "If Korean companies achieve their earnings forecasts, the KOSPI target of 12,000 will not appear unreasonable."

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