PE only 3x, valuation has dropped to financial crisis levels! With Samsung and SK Hynix earnings reports approaching, can they reverse the downward trend in stock prices?

The stock prices of Samsung Electronics and SK Hynix are currently trapped in a rare dilemma of "record earnings, rock-bottom valuations." As both companies are set to release their full Q3 earnings reports this week—SK Hynix on the 28th and Samsung Electronics on the 29th—the market is holding its breath, looking for a catalyst that will stop the decline and spark a rebound in their stock prices.

In a research report released by KB Securities, a local South Korean brokerage, on October 26, the price-to-earnings (P/E) ratios of both Samsung Electronics and SK Hynix have fallen to around 3x, with foreign ownership dropping to the lowest levels since the 2008 financial crisis. Kim Dong-won, head of KB Securities' research department, noted, "Both companies have entered historically low valuation zones, comparable to the financial crisis era, showing an extreme disconnect between profit levels and share prices." Meanwhile, Goldman Sachs also slashed its 12-month KOSPI target from 12,000 to 9,000 points on October 25, but simultaneously warned that the market's pessimistic pricing for the semiconductor industry is seriously misaligned with fundamentals.

Against this backdrop, the earnings announcement dates may serve as key turning points. This week, the market will not only scrutinize both companies' actual profitability, but will also focus on whether management can deliver convincing statements regarding the sustainability of future earnings, the progress on long-term supply contracts, and shareholder return plans. On Monday, SK Hynix confirmed it would unveil updated shareholder return measures alongside its Wednesday earnings release. Market consensus suggests this will include a special dividend of up to 16 trillion KRW (approximately $12.1 billion).

Preliminary results released by Samsung Electronics at the beginning of this month indicated consolidated operating profit for Q3 2026 of approximately 107.4 trillion KRW, a nearly ninefold increase from the same period last year—marking the first time in company history that quarterly operating profit surpassed 100 trillion KRW, and the fourth consecutive quarter to hit a new record. The consensus estimate among securities firms for SK Hynix's Q3 operating profit is 76.96 trillion KRW. Combined, the two firms are projected to earn over 184 trillion KRW in a single quarter, more than twice last year's total of about 90 trillion KRW for both companies together.

The main driver comes from the memory chip business. A surge in AI infrastructure investment is fueling booming demand for high-bandwidth memory (HBM), while tight supply for traditional DRAM and NAND chips has simultaneously pushed prices higher, resulting in significant profit expansion for both companies’ semiconductor divisions.

However, the market has remained virtually unmoved by these "well-telegraphed strong results." Over roughly the past month, both companies' stock prices have fallen by about 30%, leaving more than 11 million retail investors—around 7.97 million holding Samsung Electronics, and about 3.46 million holding SK Hynix—in a painful losing position. As of this writing, Samsung Electronics traded at 213,000 KRW, down 0.93% from the previous session; SK Hynix stood at 1.28 million KRW, up a marginal 0.23%, having touched a morning high of 1.315 million KRW.

KB Securities’ valuation analysis highlights the extremity of this disconnect. Both Samsung Electronics and SK Hynix are currently trading at P/E ratios near 3x, and foreign ownership of their shares has dropped to the lowest levels since the 2008 financial crisis—46.1% for Samsung Electronics and 48.8% for SK Hynix, both well below historical peaks (59.7% for Samsung Electronics in 2001 and 54.7% for SK Hynix in 2024).

Goldman Sachs data further corroborates this from a macro perspective. According to Bloomberg-compiled figures, KOSPI's 12-month forward P/E has fallen to around 4x, three standard deviations below its historical average—an extremely low level not seen in any of the world’s eighteen $1-trillion-plus markets since 2006, and roughly half the valuation of Indonesia’s Jakarta Composite Index (8x). Goldman Sachs explicitly stated, "The market is pricing in an overly pessimistic fundamental outlook," and believes current semiconductor valuations imply a catastrophic 65% earnings drop by 2027, a scenario far removed from actual business fundamentals.

KB Securities attributes the ongoing foreign outflows to mounting debate over the return on AI investments since the start of the year, which has evolved into concerns about capital pressures in the AI industry and potential capex cutbacks, freezing both foreign inflows and investor sentiment.

In the face of market pessimism, KB Securities presents a sharply contrasting long-term outlook. The brokerage forecasts combined operating profits for Samsung Electronics and SK Hynix in 2026-2027 of 157.1 trillion KRW, 2.1 times the total 74.8 trillion KRW earned over the 26 years spanning 2000-2025. In 2027, Samsung Electronics’ operating profit is expected to reach 55.5 trillion KRW, while SK Hynix is projected at 38.9 trillion KRW, representing year-on-year growth rates of 51% and 50%, respectively.

KB Securities believes next year’s profit growth is largely assured. It estimates that 70%-80% of the memory chips both companies plan to produce in the coming year are already secured under five-year long-term supply agreements (LTAs) with major global tech firms. Market forecasts anticipate the average selling price of HBM next year will rise 121% from this year.

Meanwhile, KB Securities sees market sentiment subtly shifting. Previously skeptical voices on the AI industry, such as Citadel CEO Ken Griffin, have turned more optimistic; Nvidia CEO Jensen Huang has downplayed the risk of memory oversupply before 2029. KB Securities believes these factors indicate AI concerns have peaked and are entering a gradual easing phase.

Market attention on this week’s results now goes far beyond the Q3 numbers themselves; the core lies in management’s statements on two key issues.

For forward guidance, investors are eager for updates on HBM4 (sixth-generation HBM) supply progress, HBM4E (seventh-generation) mass production readiness, as well as the size and proportion of long-term supply contracts. Samsung Electronics revealed in its Q2 results that it has signed LTAs with five major data center clients, while SK Hynix announced the conclusion of multi-year deals with approximately ten institutions. This time, the focus will be on whether contract coverage ratios have increased further, and how profit stability can be maintained if memory supply expands after 2028.

On shareholder returns, both companies are under urgent pressure to boost their share prices. Samsung Electronics’ previously announced 9 to 11 trillion KRW buyback has already been completed, and a cash dividend plan worth about 3 trillion KRW for Q3 will be executed by the end of this month. However, remaining return measures and their size are only expected to be finalized by January next year—the market hopes management will offer some direction for utilizing surplus funds at this earnings announcement.

For SK Hynix, the previously announced 4 trillion KRW buyback program has concluded, but the market expects additional return initiatives. According to "The Dong-A Ilbo", citing sources at investment banks, SK Hynix made net proceeds of around 2 trillion KRW from selling its Kioxia stake, of which roughly 80%—that is, 1.6 trillion KRW—will be distributed as a special dividend. Reuters reports that SK Hynix has confirmed to the stock exchange operator that it is "considering various shareholder return measures," and plans to announce them alongside Q3 earnings on Wednesday. This news briefly lifted SK Hynix shares more than 2% against a falling market on Monday. Kim Dong-won commented, "Sustainable profit improvements and a broader scope of shareholder returns are expected to be key catalysts for re-rating share prices."