Goldman Sachs Group's chief Asia-Pacific equity strategist, Timothy Moe, remains firmly bullish on South Korean stocks, arguing that the market is significantly underestimating the duration of the AI-driven memory chip demand cycle. He maintains his 12,000-point target for the KOSPI benchmark index, implying nearly 80% upside from current levels.

In a recent interview, Moe stated that "the market underestimates the duration of this earnings cycle," and projected that capital expenditures by major U.S. tech firms will surpass $1.2 trillion next year, a substantial increase from the previous estimate of $800 billion.

This optimistic outlook stands in stark contrast to recent market performance. The KOSPI has dropped 27% from its June peak, and despite strong earnings reports from chip giants like Samsung Electronics and SK Hynix, share prices have failed to gain traction. Moe's target suggests that if his earnings projections materialize, current valuations would offer investors a significant margin of safety.

Earnings Cycle Underestimated, Chip Demand Poised to Surge

Moe's central thesis is that the market systematically underestimates the persistence of the earnings cycle for South Korean memory chip manufacturers. He forecasts KOSPI component earnings growth of approximately 360% this year, slowing to around 35% by 2027. However, he argues that the eventual slowdown in earnings growth is already fully priced in by the market and is not a valid explanation for the current weakness in share prices.

The global data center construction race is the core driver supporting this view. Moe notes that large-scale data center expansion has led to a severe shortage of storage and memory chips, pushing prices higher, a supply-demand imbalance expected to intensify by 2027. He points out that hyperscale cloud providers "must continue investing even if they are not yet profitable," and that the explosive growth in computing power demand is extremely memory-intensive, directly benefiting storage chip manufacturers.

Valuations at Historic Lows, Target Backed by Fundamentals

From a valuation perspective, Moe believes the KOSPI currently prices in excessive pessimism, possibly even an overcorrection. His 12,000-point target is based on a forward price-to-earnings (P/E) ratio of 7.5 times, while the KOSPI currently trades at just 5.3 times forward earnings, roughly half its seven-year average.

Moe contends that if South Korean companies meet their earnings forecasts, the 12,000-point target "is not as aggressive as it appears." Although this target was already among the most bullish predictions on the street when set three months ago, Moe confirms he will hold firm to this view, with the core rationale being the actual delivery of earnings.

Moe does not shy away from potential risks. He acknowledges competitive threats, including the rise of companies like ChangXin Memory Technologies, and possible political resistance in the U.S. to large-scale data center expansion, both of which constitute uncertainty factors. Nevertheless, he believes these risks are insufficient to undermine the fundamental advantages of advanced memory chip makers over the coming years. In his view, the structural demand from AI infrastructure investment will continue to dominate the industry's trajectory, and South Korea's leading chip firms, with their technological moats in advanced processes like high-bandwidth memory (HBM), are well-positioned to benefit from this wave of demand.