South Korea’s Memory Duopoly: How Samsung and SK Hynix are reshaping the Korean stock market?

Since AI entered its explosive growth cycle, Major constituents of South Korea’s KOSPI index, Samsung Electronics and SK Hynix, have risen steadily, drawing the attention of global investors to both memory giants. As the two companies released their Q1 2026 earnings, the impressive growth figures not only met market expectations but also shows that South Korea’s stock market is embracing new growth engines. 

The investment narrative is getting clear

Driven by enormous demand for memory, both companies’ Q1 2026 revenue has already reached half of last year’s full-year total, laying a solid foundation for another record-breaking year. In absolute terms, Samsung Electronics’ DS segment revenue is larger than SK Hynix’s, primarily because of Samsung’s comprehensive positioning across the semiconductor value chain. Samsung’s business spans almost the entire AI hardware and application supply chain, including CPUs (Exynos), foundry services and memory products. This integrated industrial footprint has allowed Samsung to capture meaningful share of the recent AI boom, driving revenue higher.

Figure 1: Revenue of Samsung (DS Segment) and SK Hynix

SK Hynix also posted a remarkable revenue growth of 198% y-o-y. As the leading pure-play memory company, it can benefit fully from the current memory cycle. As we highlighted in our earlier piece “Memory supercycle: A structural shift rewriting supply and demand paradigm,” the memory shortage is expected to persist until 2028, which supports continued strong sales. Furthermore, while the shortage will ease as memory supply increases, AI infrastructure build-out is a long-term structural trend. As a company that combines production capability, technology leadership, and downstream partnership resources in the memory industry, SK Hynix is well-positioned to fully capitalise on the upcycle.

Figure 2: Operating margins of Samsung (DS Segment) and SK Hynix

Both companies’ operating margins have been improving since Q2 last year. Samsung Electronics in particular saw its semiconductor division’s operating margin surge from just 1.4% in Q2 last year to 67% last quarter, gradually closing the gap with SK Hynix. A key driver of this margin improvement is the shift in product mix.

AI infrastructure development has created higher-level demands for memory performance. High Bandwidth Memory (HBM) has become the most sought-after product, driving Samsung and SK Hynix to allocate their limited production capacity heavily toward HBM. As HBM’s share of the product mix has increased significantly, its high-margin characteristics have provided a powerful uplift to overall profitability.

Since the global supply of HBM is monopolised by three companies and given the high barriers to entry, any new producer seeking to compete would require years to accumulate the necessary R&D expertise and production capital. This raises the switching costs for downstream customers, giving HBM producers considerable pricing power. This characteristic is especially important when demand rises rapidly. DRAM and NAND prices have consequently surged significantly, driving revenue growth.

Furthermore, the cost structure of HBM and DRAM is predominantly fixed in nature. Taking Samsung Electronics as an example, its semiconductor division’s depreciation and amortisation expenditure accounted for 29.8% of divisional revenue last year. Even as R&D spending rises with technological innovation, these largely fixed costs are amortised as production volumes increase. With both shipment volumes and prices rising simultaneously, fixed costs are covered more quickly, and operating leverage converts most of the incremental revenue into profit. Accordingly, as both companies have entered the memory Supercycle, their margins have improved as DRAM and HBM production volumes increase.

Entering an accelerated investment cycle: Cash flow provides a solid foundation

The iterative demands of AI for high-performance memory are catalysing a new round of capital investment. Although both companies’ capital expenditure has risen in recent years, the coverage ratio of operating cash flow to capital expenditure has also climbed in tandem, demonstrating the companies’ strong ability to generate cash and reinforcing our earlier observations on profitability. Beyond general operating expenses, both companies retain ample cash flow to fund expansion, while also enhancing their resilience in the face of future memory cycle volatility.

Figure 3: Cash flow from operation to CAPEX ratio of Samsung and SK Hynix

In its Q1 2026 earnings report, SK Hynix stated that, to address medium-to-long-term memory demand, it will invest in building the Yongin Semiconductor Cluster in South Korea and in equipment procurement, with this year’s capital expenditure expected to be significantly higher than last year. Samsung, meanwhile, will increase its investment in AI infrastructure, including accelerating HBM4E sample delivery and expanding capacity for high-value AI products. The sustained capital investment reflects both companies’ optimistic outlook on the memory sector. Given that the supply-demand gap is expected to persist for several years, we believe the robust cash flows established previously will provide strong support for this expansion cycle, consolidating their market positions.

Regarding Samsung’s recent labour strike, we believe this will only have a short-term impact on Samsung and will not become an obstacle to the memory cycle. Samsung employee strikes have precedent: in 2024, workers initiated a strike over dissatisfaction with wage and bonus performance requirements, which ended after approximately two months due to financial pressure on the employees. Furthermore, the Suwon District Court in South Korea partially granted Samsung’s injunction application against the union strike, which not only increased the cost of striking for employees but also reduced the uncertainty around further industrial action. More importantly, the memory cycle driven by the AI investment wave is a long-term and irreversible trend. While a strike may cause short-term production disruptions, given the company’s capacity expansion plans and the shift toward increasingly automated production, we do not believe this will materially impact the company.

How is memory reshaping the South Korean stock market?

As companies accounting for nearly 50% of the KOSPI index, Samsung Electronics and SK Hynix’s outstanding performance has been the core driver of the index repeatedly reaching new highs. In addition, both companies’ memory exports are also boosting South Korea’s overall export performance. South Korea’s total memory exports in April this year reached USD 20.8 billion, surging 261.5% y-o-y, while last year’s full-year exports were also 31.4% higher than in 2024. The supply-demand imbalance in memory has also been driving related product price indices higher, which together with rising shipment volumes is fuelling South Korea’s broader economic development. GDP growth for the first quarter reached 3.6% y-o-y, this compelling economic indicator has further bolstered investor confidence and attracted capital inflow.

Figure 4: South Korea memory export and export price index

In the current environment, memory demand is dependent on technology companies’ investment in AI. Although several major technology companies have announced plans to increase AI-related capital expenditure going forward, the actual execution remains subject to considerable uncertainty. Additionally, the construction of supporting infrastructure such as data centres and power supply facilities takes time. If actual AI capital expenditure growth falls short of expectations, this could negatively impact memory demand. Furthermore, Micron, another major memory producer, is actively expanding its capacity. As a US-based producer, Micron faces lower political uncertainty when partnering with US companies, which represents a countervailing factor to Samsung Electronics and SK Hynix’s expansion in the US.

Although the above risks may impact Samsung Electronics and SK Hynix, we believe that over the long term, both companies’ development momentum remains solid given their current financial strength and industry leadership. Supported by the AI memory Supercycle, the multi-year binding contracts with tech giants will enhance the earnings visibility for both companies, which may also provide evidence for valuation premium. Based on the analysis above, we are adjusted our earnings forecast, and the fair P/E multiple is maintained at 12x, with a target of 8,595 points before the end of 2028, implying potential upside of 19.2%.

Figure 5: 12-Month Forward P/E of KOSPI

Table 1: Valuation and EPS Forecast of KOSPI

Table 2: Investment Products

Declaration:

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report — including all investment theses, ratings, price targets and conclusions — has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.