The AI ​​frenzy is getting bigger cracks

Just three weeks ago there was great joy in New York: “SK Hynix is opening a new chapter in the global market as a leading provider of AI technologies,” said da Kwak Noh-Jung, head of the South Korean chip manufacturer, on the occasion of its stock market debut on the Nasdaq technology exchange. The placement was many times oversubscribed and with a volume of $26.5 billion, it was the second largest IPO of the year in the USA after SpaceX. The shares gained 14 percent on the first day of trading.

But disillusionment has now set in. At $143, the share is below the issue price of $149. This is the secondary listing in New York, SK Hynix has been listed on the Seoul stock exchange for decades and the share has increased by around 960 (!) percent in the past 12 months. By going public on Wall Street, Hynix hopes to close its valuation gap on its smaller US rival Micron to reduce.

This also had to give up a lot in terms of price. After reaching a high of more than $1,200 at the end of June, the price is now just $823. And also Samsung, the third relevant manufacturer of DRAM chips, has lost around 30 percent of its share value since its peak in mid-June. The Chinese producer is relatively new to the DRAM market CXMT, which already has almost 10 percent market share. The stock market debut last week was brilliant, the share gained 470 percent on the first day of trading in Shanghai and a further 10 percent since then.

In general, chip manufacturer prices have been very volatile in recent weeks. But why is that so?

The reasons:

Taking profits: The prices of many chip stocks continued to climb sharply in the first few months of the year. Investors took advantage of this to take profits. And in general, trees never grow infinitely into the sky. However, the Nasdaq tech exchange is still up 12 percent since the beginning of the year. At Micron it’s 160 percent Intel 129 percent, at Nvidia however, only 8 percent. In the latter case, the ups and downs this year were limited. So anyone who has owned these shares for a long time is still in the green.

China: CXMT’s IPO is causing concern for other manufacturers. As in many other areas of the global economy, Chinese manufacturers could outperform Western competitors when it comes to chip speed and prices.

Market saturation: Concerns are increasing that the high expenditure on artificial intelligence will ultimately not pay off and therefore not as many chips will be needed as initially assumed; not least because technology continues to develop.

But there are also arguments for chip stocks that explain the rebound at the end of the previous week:

Economy: The US economy grew by 1.5 percent in the second quarter, weaker than expected. Nevertheless, consumer spending remained stable, including for electronic items such as smartphones, which should at least keep the demand for chips constant.

Bottlenecks:Manufacturers therefore expect the global chip shortage to worsen by 2028. “The shortage is expected to worsen in 2027 compared to this year and continue in 2028,” said the head of Samsung’s memory division, Jaejune Kim.

Good quarterly figures: Analysts’ expectations are (too) high and therefore often not fulfilled. In principle, however, many balance sheets are correct. Samsung reported a record operating profit of 60.6 trillion for the second quarter. Won (36.5 billion euros). Compared to the same period last year, this is an increase of 557 percent. At Intel, sales jumped by a quarter to $16.1 billion. It was the fastest sales growth in years. Weaker develops Qualcomm. Sales fell by 4 percent to just under $10 billion. However, the share was never one of the high flyers (it has remained almost unchanged for five years).

Stable key interest rates: As expected, the US Federal Reserve did not raise interest rates last week. Observers now believe it is possible that there will be no increase in September, contrary to previous forecasts. That would be good for the capital-intensive tech industry because it would not make debt capital more expensive.