The only analyst who rated "sell" on the South Korean chip giants: with such high expectations, the stock price is likely to fall easily

As the only analyst to give a sell rating on both SK Hynix and Samsung Electronics, Morningstar analysts stated that the valuations of Korean chip stocks have reached an inexplicable level, making them susceptible to significant declines due to minor setbacks.

More than a month ago, Morningstar released a bearish report on Korean chip stocks, which did not attract much attention at the time. However, as scrutiny of the tech giants' substantial investments in artificial intelligence deepens, the report has regained attention.

The research report pointed out that although SK Hynix and Samsung benefit from a surge in demand for AI-driven high-bandwidth memory chips, the long-term outlook for such spending is far from certain. Morningstar's equity analyst Jing Jie Yu stated:

The current AI investments by hyperscale cloud service providers are reaching extremely high levels, and we are concerned about whether this intensity can be sustained.

The Singapore-based analyst noted:

Investor confidence is very unstable and tense. When expectations are so high, all drivers and catalysts must align perfectly for stock prices to rise further, which can easily lead to disappointment.

Last Wednesday, SK Hynix and Samsung recorded their largest single-day declines in months. Although the stock prices recovered afterward, this volatility has made investors who heavily bet on the two major Korean stocks uneasy. Previously, these two stocks had propelled the Korean Kospi index to rise over 70% this year.

Vulnerability Under High Expectations, but Market Still Driven by FOMO

Morningstar's research report recommends adopting a "risk-averse strategy" in this volatile and frenzied market. Jing Jie Yu stated:

At this price level, investors find it difficult to justify entering the market, or it is easy to justify exiting.

Before joining Morningstar, Jing Jie Yu worked at River Valley Asset Management, Singapore Bank, and Santa Lucia Asset Management.

Currently, Jing Jie Yu is the only analyst with a sell rating on both of these major Korean chip giants. As the market's scrutiny of tech stock valuations deepens, his warnings are gaining more attention.

However, the overall sentiment in the market regarding artificial intelligence remains optimistic, with fears of missing out on a historic technological transformation outweighing concerns about a bubble.

Since Morningstar downgraded the ratings in September and October, SK Hynix and Samsung's stock prices have risen over 80% and 20%, respectively.

After a 94% increase in Samsung's stock price this year, it is trading at an expected forward P/E ratio of 11 times, while SK Hynix, after a 61% increase in October, is only at 8 times. In contrast, the P/E ratio for major U.S. chip manufacturers is 27 times