HSBC: Samsung Electronics' Pricing 'Equivalent to No AI', Implied Long-Term Profitability Has Dropped Back to 2024, Most Intense Selling Pressure Nearing Its End

On August 4, HSBC, in its latest report, chose not to use traditional price-to-earnings (P/E) valuation, instead opting to reverse-engineer the long-term profit expectations implied by the current Samsung Electronics stock price. Based on the consensus earnings expectations for the next three years, they conducted 100,000 Monte Carlo simulations to identify a 15-year profit trajectory that matches the current stock price. The conclusion indicates that the market has significantly downgraded the long-term AI profit outlook for South Korean memory stocks.

Samsung Electronics has become the most extreme case, with its stock price dropping approximately 25% from its peak in early June. The implied profit cycle has shortened from about 3.5 years to 2.5 years, and the implied trend EPS relative to 2024 levels has plummeted from about 2 times to just 0.8 times, effectively erasing almost all long-term AI premiums. The implied EPS compound growth rate from the third to the ninth year has further declined from about -15% to -35%, reaching a historic low—indicating that the market not only believes this round of AI prosperity is difficult to sustain but also thinks that Samsung's profitability after the cycle ends may not even exceed the levels seen before the AI wave began in 2024.

SK Hynix has experienced even more severe adjustments, with its stock price dropping 37% since its peak on June 25. The implied profit cycle has sharply decreased from about 6 years to 2.7 years, and long-term trend profits have fallen from about 6 times in 2024 to about 2 times, leading to the belief that this decline is "overly pessimistic." In contrast, TSMC's implied profit cycle remains at about 7.4 years, with long-term trend profits at about 2.3 times in 2024, as the market still recognizes that AI can bring profit improvements across cycles. The pricing difference between South Korean memory stocks and TSMC has become the most distinct feature of this round of adjustments.

In terms of capital flow, foreign investors have cumulatively net sold approximately $150 billion worth of Samsung, Hynix, and TSMC stocks this year, with about $60 billion since June. The management scale of single-stock 2x leveraged ETFs, which had previously amplified volatility, has decreased from about $37 billion at the end of June to $12 billion, with the trading proportion on days of extreme stock volatility significantly declining.

It is believed that the most destructive mechanical selling pressure is weakening, and the current core issue is no longer whether AI demand exists, but whether stock prices have compressed the AI cycle too pessimistically.

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