Nomura keeps buy ratings on Samsung Electronics, SK hynix, citing severe memory supply shortage

Nomura Securities said South Korea's leading memory chipmakers Samsung Electronics and SK hynix are currently undervalued.

The assessment comes as both companies have broadly been seen as entering a correction phase amid global stock market volatility.

On Friday, Nomura maintained its buy ratings on Samsung Electronics and SK hynix, keeping its price targets at 670,000 won ($493) and 4.7 million won, respectively, according to Yonhap.

The brokerage said the two chipmakers' share prices have fallen roughly 37 percent from their peaks and are trading at an average of just three times their projected 2027 price-to-earnings ratios — a level it described as severely undervalued.

"The memory market is currently seeing unprecedented demand strength driven by the AI investment cycle, while supply remains critically short," Nomura said.

Nomura projected that global memory production capacity would need to double to 7.2 million wafers per month within four years, and triple to 11 million wafers per month within six years, to keep pace with surging demand.

The brokerage also said that while Chinese manufacturers are aggressively expanding capacity, their impact on overall supply and demand remains limited, and a supply shortage is expected to persist through 2028.

Nomura flagged near-term risks as well, pointing to won strength as a key concern. It revised down its third-quarter operating profit estimate for SK hynix to 77 trillion won from an earlier projection of 86 trillion won, citing the impact of a stronger won, and forecast Samsung Electronics' third-quarter operating profit at 107 trillion won.

"Domestic memory companies receive payments in dollars but incur a significant portion of their costs — roughly 20 percent of sales — in won," Nomura said. "A 10 percent appreciation in the won would reduce operating profit by about 12 percent, creating short-term earnings pressure."

Nomura said, however, that the currency headwind would be offset by rapidly rising average selling prices for memory chips.

The brokerage added that a combination of a robust memory market outlook and aggressive shareholder return policies would drive a full-scale rerating of both stocks.

Nomura raised its price target for Samsung Electronics to 670,000 won from 590,000 won in June.

At the time, the brokerage said it saw upside potential of about 90 percent from the then-current share price, while cautioning that downside risks to earnings remained in the non-memory business segment.

Meanwhile, the global NAND flash memory market continued to grow in the second quarter of this year, with Samsung Electronics and SK hynix claiming the top two spots.

Global NAND market sales rose 70 percent quarter-on-quarter in the second quarter, according to market research firm Counterpoint Research.

NAND prices climbed 55 percent over the same period, marking a second consecutive quarter of growth. Samsung Electronics held first place with a 28 percent market share, down 1 percentage point from the previous quarter's 29 percent. SK hynix ranked second with 19 percent.

Micron moved up to third place after lifting its share to 15 percent from 13 percent. Kioxia and China's YMTC tied for fourth at 14 percent each, unchanged from the prior quarter. SanDisk ranked fifth with an 11 percent share, down 2 percentage points from the previous quarter.