Japan at 15x, Korea at 4x... Samsung Electronics and SK hynix Back to Levels Seen 8 Years Ago

KOSPI plunge leaves valuations at record lows
Driven by "doubts about future earnings" weighing on Korean chipmakers
Proving AI can generate returns and restoring long-term confidence are key

As domestic stocks have plunged and volatility has increased, South Korea's valuation has fallen to a record low compared with those of major global markets. In particular, the price-to-earnings ratios (PERs) of Samsung Electronics and SK hynix, which underpin the KOSPI, have slumped to levels last seen eight years ago, prompting analysis that distrust of the semiconductor market's future earnings has reached an extreme. Ultimately, proving that artificial intelligence (AI) investments can generate real returns and restoring confidence in the semiconductor earnings cycle beyond 2028 are expected to be key to a future rebound in share prices.

According to Korea Investment & Securities on October 16, South Korea's 12-month forward PER and price-to-book ratio (PBR) stand at just 4.2 and 1.34, respectively. These figures are far below the global averages of 16.2 for PER and 3.24 for PBR. They are also markedly lower than those of the United States (19.4 and 4.74), Japan (15.3 and 1.83), Europe (13.9 and 2.20), and China (10.0 and 1.18).

One of the main reasons for the domestic stock market's weakness is the extreme undervaluation of leading semiconductor stocks that underpin the market. Long-term trends since 2010 compiled by FnGuide show that Samsung Electronics' 12-month forward PER fell to 3.61 as of October 14, well below its previous low of 6.19 in October 2018. SK hynix's 12-month forward PER also fell to around 3.22, dropping to a level similar to its reading in October 2018.

KB Securities analyzed that Samsung Electronics and SK hynix have such strong earnings-generating power that their combined profits of approximately 1,600 trillion won in 2026 and 2027 alone would be enough to retire more than half of their own shares. However, their low PERs suggest that investors still regard semiconductors as a cyclical industry prone to extreme booms and busts, and doubt its ability to generate future earnings. Semiconductors are essential to every product, like rice is to a meal, and sit at the very upstream of the supply chain. As a result, they are highly susceptible to the "bullwhip effect," in which changes in end-consumer demand are greatly amplified. The current semiconductor industry is experiencing an intensified bullwhip effect, compounded by demand from AI data centers. This can sharply boost earnings during a boom, but also cause various problems once bottlenecks are resolved. The most notable are excess inventory and overinvestment, similar to what occurred with COVID-19 test kits, masks and toilet paper, and container ships after the COVID-19 outbreak. The report therefore noted that the semiconductor industry also warrants continued monitoring for the long-term risk of excess inventory and overinvestment.

One major factor fueling market concerns about overinvestment is the prospect of expanded supply from China's Changxin Memory Technologies (CXMT). This, combined with concerns about U.S. interest rate hikes and uncertainty over AI companies' ability to raise funds, triggered a wider sell-off across Asian markets. In Japan, in particular, AI and semiconductor-related stocks that had driven the market's rise plunged, deepening the decline. Weakness in major stocks including Kioxia, Advantest, Tokyo Electron, and SoftBank Group sent the Nikkei 225 Stock Average, or Nikkei Index, down for six consecutive trading days. On October 15, it fell 4.90% from the previous trading day, its third-largest drop on record.

Hyundai Motor Securities noted that the KOSPI's 12-month forward operating profit estimates have continued to rise on the back of strong domestic memory semiconductor earnings, even as share prices have remained weak. It said that short-term increases in estimates alone cannot dispel market doubts about future earnings. The firm assessed that the earnings growth of leading domestic semiconductor stocks in 2027 has already been priced in. When operating profit is expected to rise year over year, 12-month forward operating profit estimates are automatically revised upward toward year-end, as they incorporate a larger portion of the following year's earnings outlook. These revisions, therefore, should not be interpreted narrowly as an actual improvement in earnings expectations. In fact, operating profit estimates for Samsung Electronics and SK hynix for 2026 and 2027 have been revised downward after reaching peaks. This suggests that the market is focusing more on the possibility that earnings will peak in 2027 than on strong current results. The firm said that a genuine improvement in earnings expectations would require upward revisions to 2027 operating profit itself, rather than just to the 12-month forward figures.

The analysis said that confidence in 2028 earnings is needed to fully dispel concerns that earnings have peaked. The reason share prices have not responded to strong earnings growth at domestic semiconductor companies is that investors lack confidence that structural earnings growth will continue beyond 2028. Nvidia also experienced a share price correction in the second half of 2024 amid concerns that its revenue and profit margins would decline the following year. Its share price continued to fall despite upward revisions to 12-month forward estimates. However, in the second half of 2025, estimates for 2026 earnings, rather than those for the current year, began to rise substantially, enabling the company to overcome peak-earnings concerns and rebound.

An electronic board in the dealing room at Hana Bank's headquarters in Jung-gu, Seoul, displays the KOSPI, KOSDAQ and won-dollar exchange rate on the 16th. The KOSPI opened at 5,653.99, up 1.80% from the previous trading day, while the KOSDAQ opened at 772.17, up 1.49%. Photo by Kang Jinhyung. 2026.10.16. Photo by Kang Jinhyung

The KOSPI opened at 5,653.99, up 99.77 points (1.80%).

Meanwhile, on October 16, domestic stocks were attempting to rebound for the first time in eight trading days, ending a seven-day losing streak. The KOSPI opened at 5,653.99, up 1.80% from the previous trading day, and was trading at 5,682.66, up 2.31%, as of 9:50 a.m. The KOSDAQ was trading at 785.44, up 3.24%, at the same time. During the recent downturn, heavy foreign selling and net selling by pension funds, which were expected to act as a backstop for the indexes, added to downward pressure. According to the Korea Exchange, foreign investors sold a net 18.3003 trillion won worth of KOSPI shares from October 6 to 15. Institutions, including pension funds, also recorded net sales of 126 billion won. Individual investors alone absorbed the selling, making net purchases worth 11.1823 trillion won.

Han Ji-young, a researcher at Kiwoom Securities, said, "A series of sharp declines has significantly dampened the investment sentiment of domestic market participants, but we should remain open to the possibility of a technical rebound in the short term. Given the seven consecutive days of steep declines, the expected value of a technical rebound has risen substantially." He added, "The KOSPI's forward PER is currently at its lowest valuation since 2000, but the market does not fully trust the high earnings estimates. There are limits to how far the market can go before U.S. big tech companies report their third-quarter results."

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