(Bloomberg) — Shares of SK Hynix Inc., a key supplier to Nvidia Corp., tumbled more than 11% in post-holiday catchup trading after Chinese startup DeepSeek shocked the AI world.
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The surprising news this week that DeepSeek’s new AI model was potentially more advanced than expected, at a much cheaper cost, caused a rout in global chip stocks while South Korea was shut for Lunar New Year. Shares of Nvidia and others have recovered to different degrees but investors are still on edge.
“The talk among traders is whether this is a temporary shakedown or something more permanent,” said Jung In Yun, chief executive officer at Fibonacci Asset Management Global Pte. “As the focus will now be fixed on the cost to develop AI tools — with much doubt whether we really needed expensive semiconductor chips in the first place — the broad market selloff in the semiconductor segment is inevitable.”
Meanwhile, Bloomberg News reported SK Hynix’s rival Samsung Electronics Co. has obtained approval to supply a less advanced version of its high-bandwidth memory chips to Nvidia. SK Hynix’s supply deal with Nvidia for the most advanced chips had helped make the smaller Korean firm’s shares a popular AI trade.
Shares of Samsung Electronics slid as much as 3.7% Friday in Seoul, stung by the DeepSeek news as well as its report of smaller-than-expected profit for the December quarter.
Meanwhile, Korean internet companies that could potentially benefit from cheaper AI-related costs saw a boost. Shares of Kakao Corp. climbed as much as 9.1% while Naver Corp. gained 7.1%.
SK Hynix’s stock is still up 15% this year, helping to power the benchmark Kospi’s rebound after a loss for 2024. There had been signs investors were pausing for breath, however, even before DeepSeek threw the market a curveball this week.
Despite SK Hynix reporting a more than 20-fold increase in quarterly operating profits last week — beating Samsung Electronics’ earnings for the first time — its shares fell as investors took profit.
Bullish investors say Korean tech stocks are good value after their underperformance amid the global AI boom of the past couple years. The nation has been struggling to lift valuations amid concerns over chronically poor corporate governance.
“It is not surprising that the market’s two semiconductor heavyweights are catching down to Nvidia’s level shift this week,” said Homin Lee, a Singapore-based senior macro strategist at Lombard Odier. Longer term, “we believe that South Korea offers a relatively cheap play on the global AI boom that might ultimately get an additional boost from the arrival of more efficient models that meaningfully accelerate the diffusion of AI tech to all users.”
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