Upgrade to 4 Stars: Can Narratives Beyond Memory Become the New Catalyst for South Korea Market?

• South Korea is upgraded to 4-star (Very Attractive), with a KOSPI fair P/E raised to 13x and a 2028 target of 10,958, implying 25.6% upside.

• The memory thesis remains structurally intact: SK Hynix and Samsung control 79% of global HBM share, and SK Hynix projects supply will remain tight until at least 2030.

• AI application expansion — through NVIDIA partnerships with LG, Hyundai Motor, and Naver — is emerging as a second catalyst beyond the memory cycle.

• South Korea's semiconductor exports rose 37.2% year-on-year in May, with Manufacturing PMI at 54.8 and the Bank of Korea upgrading its 2025 GDP forecast to 2.6%.

• Capital market reform under President Lee, including mandatory value-up programs and dual-listing prohibitions, reduces the Korea Discount and lowers the equity risk premium.

The current investment narrative for the Korean stock market is largely centred on the memory shortage trend, with Samsung Electronics and SK Hynix serving as bellwethers for overall market performance. As a country home to numerous advanced technology companies, are there catalysts beyond memory for the Korean stock market?

The core growth logic for Samsung and SK Hynix remains intact

In our earlier article on South Korea’s memory giants, we analysed the Q1 earnings performance of Samsung Electronics and SK Hynix. As both companies shifted their production mix toward high-bandwidth memory (HBM) with higher profit margins, the effect of operating leverage has significantly boosted their bottom-line results.

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

According to Counterpoint, SK Hynix and Samsung Electronics together account for 79% of global HBM market share. The AI race among major technology companies has driven memory capacity demand to exceed supply, with SK Hynix projecting that the shortage will persist until at least 2030. The market has gradually priced in expectations of a structural memory cycle into the share prices of Samsung and SK Hynix, propelling the KOSPI index higher. The better-than-expected Q1 results further validated this investment thesis and boosted market sentiment.

In response to growing demand for memory performance and capacity, Samsung Electronics and SK Hynix have announced plans to expand capital investment to increase shipments and enhance memory performance. For instance, Samsung Electronics has begun sending samples of the first batch of 12-layer HBM4E samples to global customers, while SK Hynix has announced the construction of new facilities and a plan to double wafer capacity. Continued technological innovation and capital deployment demonstrate both companies’ confidence in this memory cycle. As capacity and technology investments progressively come online, upfront capital expenditure will be converted into future growth momentum, serving as a long-term core driver of share price valuation.

Look beyond memory: AI applications will become the new catalyst.

Although Samsung Electronics and SK Hynix already account for approximately half of KOSPI’s market capitalisation, the role and development potential of other index constituents within the AI supply chain should not be overlooked.

Jensen Huang from NIVIDIA visited South Korea in June and held meetings with several Korean technology companies, including plans to jointly build an AI factory with LG to advance physical AI and data centre development, to refine autonomous driving technology with Hyundai Motor, and to develop agentic AI with Naver. This visit drew market attention to South Korean technology companies beyond Samsung and SK Hynix. If the collaboration projects with NVIDIA are successfully realised, KOSPI could see new catalysts emerge.

Table 1: Korean Companies and Their Roles in the AI Industry

Company	AI Strategy
SK Square	As the principal shareholder of SK Hynix and an investment company focused on the semiconductor and technology sectors, SK Square’s revenue will rise alongside the memory cycle, while also helping SK Hynix strengthen its supply chain through mergers, acquisitions, and investments.
LG Electronics	Driving the convergence of AI and consumer electronics, currently developing physical AI and home robotics solutions.
Hyundai Motor	Deploying Atlas robots, integrating the NVIDIA DRIVE platform, and advancing autonomous driving technology.
Naver	Leveraging its proprietary LLM HyperCLOVA X and in-house cloud infrastructure Naver Cloud to provide AI-generated content, AI chat, and workflow automation services to enterprise and individual users.
Source: Company news, iFAST Compilations.

AI business is creating a second engine

For companies with relatively weak core businesses, the integration and development of new AI capabilities will create fresh growth engines. Take Hyundai Motor as an example, amid fierce competition in the automotive market, its Q1 net profit declined 23.6% y-o-y, and vehicle sales fell 2.5% y-o-y, with the Asia-Pacific and South Korea regions recording the most notable declines. Given the saturation of the automotive market, Hyundai Motor unveiled the following Physical AI Robotics Strategy:

• Transforming to smart manufacturing: Accelerating the industrial deployment of the Atlas robot series through a newly established Robot Metaplant Application Center and its own manufacturing facilities.
• Driving Hyundai’s transformation into an intelligent manufacturing enterprise within the AI ecosystem.

While the market’s current focus remains on the memory shortage narrative, and other technology companies carry lower weighting within the KOSPI index, accelerating AI application innovation is expected to broaden South Korea’s coverage across the global AI supply chain and inject new long-term growth momentum into the stock market.

Improving economic data underpins stock market growth

As a core component of the global AI supply chain, South Korea’s exports have risen markedly on the back of memory demand. Semiconductor exports rose 37.2% y-o-y in May, driving overall exports up 16.5% y-o-y. On the production front, South Korea’s S&P Global Manufacturing PMI reached 54.8 in May, with new orders expanding for six consecutive months and output recording its strongest growth in nearly five years. Sustained robust order growth and export data will not only translate into higher profits for manufacturers, but will also reinforce corporate investment confidence, creating a conducive fundamental environment for KOSPI valuation expansion.

Figure 1: Semiconductor and total exports of South Korea 

Although the Middle East conflict may pose some supply chain disruptions, semiconductor demand remains strong against the backdrop of an accelerating global AI capital investment cycle, providing continued support for South Korea’s production. At the same time, the recent stock market rally will transmit to household consumption through a wealth effect, rising asset values may stimulate consumer spending, providing further demand-side support for economic performance. Accordingly, the Bank of Korea upgraded its GDP growth forecast for the year from 2.0% to 2.6% in late May, reflecting the authorities’ optimism about economic development and laying a solid economic foundation for Korean equity market growth.

Figure 2: S&P Global South Korea Manufacturing PMI

The other side of growth: Non-negligible risks remain.

1.      Supply-demand imbalance may ease

As noted above, Samsung Electronics and SK Hynix are increasing capital expenditure to build new facilities and expand capacity. For example, SK Hynix began construction of its advanced packaging facility P&T7 in April to support HBM production, with the facility expected to gradually come online by end-2027. Samsung Electronics also resumed construction of its P5 wafer fab at the start of the year, with planned production expected by 2028 to support HBM shipments. Current capacity expansions will therefore begin coming online in two to three years. Since the supply-demand imbalance has been the primary driver of rising memory prices, if this imbalance eases, memory prices could face downward pressure.

2.      Heightened market volatility

Given the increased market attention on South Korean equities, various leveraged products have begun to emerge, including 2x leveraged and inverse products targeting Samsung Electronics and SK Hynix individually, as well as the KOSPI index as a whole. While these leveraged products offer the potential for amplified returns, they also cause capital flows to become more frequent, magnifying overall market volatility. Furthermore, South Korea has a very large retail investor base, and elevated market sentiment tends to drive retail investors into the market and into leveraged products, making the financial market more fragile. Given that Korean retail investors generally carry higher leverage, any market correction or negative news could see margin pressure force investors into position liquidation, triggering a wave of selling, causing market turbulence, and resulting in investor losses.

Multiple catalysts open upside for valuation

1.      Enhanced earnings visibility

We believe that AI value will be progressively unlocked in the years ahead, with technology companies such as Hyundai Motor, LG Electronics, and Naver providing solid technical foundations for the real-world deployment of AI applications. Once these technology companies’ projects are successfully commercialised and AI applications reach inflection-point growth, the commercial value will be directly reflected in their financial results. Therefore, we expect earnings growth among South Korean technology companies to remain solid, supporting an improvement in overall market earnings visibility.

In addition, as large AI foundation models continue to iterate, token consumption and demands on model memory will continue to drive memory demand. Not only for higher-performance HBM, but also for other memory products such as LPDDR and NAND. JLL also projects that data centre capacity will double between 2025 and 2030, further stimulating memory demand. As such, although capacity expansion could weigh on memory prices, robust demand and technological barriers will establish a relatively high price floor, limiting the extent of any potential decline.

Related article: Memory Supercycle | AI Tokenomics and the Next Memory Repricing Opportunity

On the other hand, major technology companies tend to sign long-term agreements with Samsung and SK Hynix to secure supply stability. For example, NVIDIA recently announced that it has entered into a long-term memory supply agreement with SK Hynix to support the development of its Vera Rubin platform. Such contracts not only help memory manufacturers lock in prices in advance, but also provide assurance of long-term earnings visibility.

2.      Continued progress on “Korea Discount”

Since President Lee Jae-myung took office, the South Korean government has pushed forward a series of measures to address the Korea Discount, including mandatory value-up program and prohibiting dual listings between parent and subsidiary companies. Through capital market reform, the intrinsic value of listed companies may be further unlocked, and a more robust market framework will provide a healthier foundation for the sustainable development of the stock market.

3.      Valuation multiples have room to recover

In summary, we believe the current market has not yet fully priced in South Korea’s development potential in the global technology and AI ecosystem. The country’s upgraded strategic positioning will serve as a strong support for valuation expansion. Furthermore, we view the memory shortage as a structural cycle, the deepening of AI models and end applications will continue to drive memory demand. Backed by difficult-to-replicate technology and customer networks, Samsung Electronics and SK Hynix are expected to maintain relatively entrenched market positions, continuing to benefit from the cycle with a degree of earnings visibility assured. President Lee’s capital market reforms also help reduce market risk premium. Therefore, valuation multiples are supported to recover.

Figure 3: 12-Month Forward P/E of KOSPI

In light of the above, despite the risks outlined, multiple catalysts are expected to provide solid support for the Korean equity market. We therefore upgrade our rating on the Korean equity market to 4-star (Very attractive), reflecting the room for further growth in KOSPI earnings and valuation.

We have also raised our fair P/E to 13x, the target price at the end of 2028 will be 10,958, implying a potential upside of 25.6% for the index.

Table 2: Valuation and EPS forecast of KOSPI

	2025A	2026E	2027E	2028E
EPS (KRW)	248.9	627.6	787.2	842.9
EPS growth rate	19.4%	152.2%	25.4%	7.1%
P/E ratio	35.1	13.9	11.1	10.4
Dividend yield	0.8%	1.9%	2.4%	2.6%
Target price at the end of 2028 (Based on 13x Forward P/E)				10,958
Potential upside				25.6%
Source: Bloomberg L.P., iFAST Compilations. Data as of 16 June 2026.

Figure 4: KOSPI EPS forecast

Table 3: Related products