Bank of Korea shrugs off semiconductor peak fears, sees expansion continuing

The Bank of Korea has shrugged off concerns that the global semiconductor cycle has peaked, arguing that surging demand driven by AI infrastructure investment is outpacing the industry's ability to expand supply of high-performance chips.

In a written response submitted Monday to the office of People Power Party lawmaker Park Sung-hoon, the central bank said the semiconductor cycle remains strong because "demand for chips has risen sharply on the back of AI infrastructure investment, while the pace of supply expansion has been slow," pointing to a market where demand continues to outstrip supply.

On the demand side, the Bank of Korea said the current expansion differs from previous cycles because "competitive corporate investment is driving growth at a time when the fundamental transformation of the industrial ecosystem — spurred by the spread of AI — is expected to continue."

On the supply side, it said "significant time is required to mass-produce high-performance products due to their technical complexity," adding that the dominance of custom-order products such as HBM — high-bandwidth memory — is constraining the pace of supply expansion more than in past cycles.

Taking these factors together, the Bank of Korea said the global semiconductor cycle is likely to remain in expansion for a considerable period.

"The current semiconductor cycle is showing a far stronger trajectory than past expansions, driven by robust global AI infrastructure investment in data centers and elsewhere," the bank said.

The bank noted that the current semiconductor expansion has now lasted 40 months since March 2023, already surpassing the average duration of 29 months recorded across five expansion cycles between 2000 and 2020.

The Bank of Korea also cited views from overseas investment banks to reinforce its assessment that the semiconductor upcycle remains intact.

While acknowledging "uncertainty surrounding the speed and scope of AI technology adoption and its profitability," the bank said major investment banks including JPMorgan, Goldman Sachs and Morgan Stanley "generally expect the global semiconductor cycle to remain strong at least through next year."

The stronger-than-expected semiconductor performance has prompted the Bank of Korea to revise its economic growth forecasts upward in successive rounds. Its projection for this year's growth rate rose from 2 percent in February to 2.6 percent in May, a gain of 0.6 percentage points. A bank official said Samsung Electronics' first-quarter operating profit, which far exceeded expectations, "had a significant impact on the upward revision in May." Some market observers have begun discussing the possibility of growth exceeding 3 percent this year.

Semiconductor earnings data reflect the sharp upswing. Year-on-year growth in chip exports on a customs-clearance basis reached 171.4 percent in April and 167.7 percent in May. The pace is estimated to have accelerated further in June, when monthly total exports broke through $100 billion for the first time. Samsung Electronics posted a consolidated operating profit of 89.4 trillion won ($59.4 billion) for the second quarter of this year, setting a record for the third consecutive quarter and surpassing the all-time quarterly earnings records of both Nvidia and Apple.