A change is afoot in Asian chip stock leadership, as South Korean memory maker SK Hynix Inc pares its big gain for the year on the global rotation out of overheated artificial intelligence (AI) winners.

At the same time, foreign investor buying of Samsung Electronics Co has driven its shares higher. That comes as the company is expected to win more business with key AI chip designer Nvidia Corp.

The gap between the two stocks is likely to at least “soften” from here, as SK Hynix shares appear set to decline more sharply, said Roh Jongwon, the chief investment officer of Infinity Global Asset Management. “SK Hynix absolutely outperformed Samsung Electronics so far this year, but the higher the mountains, the deeper the valley.” 

Samsung was the only gainer last month on a six-member Bloomberg Intelligence gauge of memory-related stocks, rising nearly 3% while SK Hynix and Micron Technology Inc fell more than 16% each. SK Hynix shares tumbled more than 10% on Friday as the global tech sell-off extended, while Samsung’s dipped 4.1%.

SK Hynix rose quickly to become the dominant supplier of high-bandwidth memory (HBM) chips that work in conjunction with AI accelerators. Samsung has been making progress, however, saying this week that it expects to sharply increase its HBM output. It anticipates approval from Nvidia for its next-generation HBM3E chip in two to four months, Bloomberg News reported.

“From Nvidia’s perspective, it cannot meet demand with supplies from SK Hynix only,” said Jung In Yun, the chief executive officer of Fibonacci Asset Management Global. “Once Samsung passes the qualification test from Nvidia, its revenues next year will grow explosively,” he said, adding that it’s time to increase bullish exposure to the stock.

Overseas funds - which account for a large portion of daily trading in Asian markets - have begun to position for a shift. Foreign investors sold US$1.50 billion worth of SK Hynix shares on a net basis in July, their first withdrawal in three months, while adding US$2 billion worth of Samsung. 

Samsung may be gaining at the expense of AI chip stocks outside of South Korea as well, as global funds sold a net US$5.8 billion of Taiwan Semiconductor Manufacturing Co (TSMC) shares last month. TSMC fell 3.3% in July, its first monthly loss since September last year.

To be sure, sell-side analysts remain bullish on both South Korean memory makers, with 41 buy recommendations on SK Hynix versus 39 for Samsung.

Even after posting its worst monthly drop since 2011, SK Hynix still looks “slightly overvalued”, according to Kazunori Ito, an analyst at Morningstar Inc. Ito has the only sell recommendation on SK Hynix.

“SK Hynix’s share price has been too optimistic as expectations for AI server demand were too high,” Ito said. “We continue to prefer Samsung Electronics over SK Hynix due to the lower valuation, and if Samsung succeeds in passing Nvidia’s qualification test for HBM3E, it will be the catalyst to narrow the valuation gap.”

  - Bloomberg