[Seoul Pre-Market Brief] Oil Prices Tumble, CoreWib Rebounds Amid U.S.-Iran Deal Reports

Oil prices retreat to $101 per barrel as U.S.-Iran mediation reports surface, causing late-session selling pressure and erasing intraday gains. The AI credit concerns persist, despite Coreweave's rebound, as domestic markets enter an oversold territory.

Key Market Developments

• ① Coreweave's Rebound: AI Optimism vs. Caution

Early trade saw a continuation of AI-related selling, leading to a weak market open.

The sharp decline in South Korean markets and the first-day plunge of Ellis, an AI data center firm, drew international attention.

Bloomberg attributed these moves to a decline in trust towards NeoCloud, suggesting a shift in market sentiment from 'buy everything AI' to a more discerning approach, evaluating individual companies' business performance and financial health.

An indicator of Coreweave's credit risk rose, adding to the caution.

However, the outlook for AI infrastructure demand remains positive.

ABB noted that there are no signs of a slowdown in data center construction, with strong demand trends continuing.

UBS also confirmed demand at a recent data center expo, forecasting robust AI infrastructure investment into next year.

Cash App's Wood Buys CoreWaves Stock Amid Recent Decline

CoreWaves shares reversed course and rose after an early decline, with Cathie Wood taking advantage of the dip to continue accumulating the stock through her ETFs.

• **② Oil Prices Plunge on Reports of U.S.-Iran Mediation Efforts**

Crude oil prices surged at the open, driven by the attack on a tanker in the Strait of Hormuz and heightened tensions in the Middle East. Reports of at least 18 ships being attacked over the past two weeks and potential disruptions to Saudi Arabia's oil exports due to infrastructure damage further fueled the price rise.

However, the narrative shifted as Middle Eastern media outlets reported that a mediation effort was being discussed between the U.S. and Iran. According to these reports, the Iranian president and the Pakistani side have discussed the proposal, and a draft reflecting both sides' demands has been conveyed. The mediation effort is said to include issues such as Iran's frozen assets in Qatar and IAEA access to nuclear facilities.

While a formal dialogue has not yet been confirmed, the spread of negotiation expectations led to a reversal in oil prices, which gave up their gains and closed 1.80% lower at $101.79.

Market Recovers from Oil Price Drop

• **Data Center Power to Double, Semiconductor Sector Differentiation**

Semianalysis forecasts a significant surge in global data center power capacity, from 25GW this year to an impressive 51GW next year, more than doubling the current capacity.

The scale of additional servers over the next 12 months is also expected to match the total servers built by 2024, indicating a steady demand for data center infrastructure.

This projection serves as a strong indicator of the ongoing strength in actual data center construction demands, irrespective of the ongoing debate surrounding the sustainability of AI investments.

Amazon, Broadcom, and Tesla led the gains, while Western Digital, Seagate, and Marvell Technology also showed strength. Micron, however, fell due to reports of a potential labor strike in Taiwan. Apple weakened on a downgrade citing iPhone sales slowdown and valuation concerns.

Market Watchman's Perspective

Recently, the domestic market has been more reactive to AI-related forecasts and speculative news than to confirmed earnings. Almost daily, new catalysts emerge, such as China's semiconductor and data center investments, and NeoCloud's financial issues, putting pressure on investor sentiment.

Market Outlook: Navigating the October Slump

The KOSPI's monthly decline in October has widened to approximately 19%, a significant drop. Historically, over the past decade, months with declines of over 10% have been followed by rebounds in the subsequent month. While past statistics do not guarantee future trends, it is evident that the current downturn is unusually severe.

Analyzing Fundamentals and Valuations

When assessing SK hynix, it is crucial to examine both its performance and valuation. Based on Si-hwang-man's estimates, the company's price-to-earnings ratio (PER) stands at 3.6x for this year's expected performance. Applying next year's projected earnings, the PER drops to 2.8x, while the price-to-book ratio (PBR) is at 1.3x. The current stock price has declined by approximately 60% from its peak. The market seems to be more concerned about the potential impact of China's semiconductor pursuit and the slowdown in data center investments on existing performance forecasts rather than the actual performance itself.

Addressing AI-Related Concerns

Most recent AI-related setbacks are more speculative, focusing on potential future changes rather than confirmed performance variations. While it may be challenging to transition immediately to a stable flow after experiencing such significant volatility, we have already entered a phase where the magnitude of the decline itself should be considered. It is essential to continue monitoring the movements of existing strong stocks, performance-improving sectors, and leading stocks.

Key Focus Points

U.S.-Iran: The potential for actual negotiations following reports of a mediation proposal.

Oil Prices: Further decline in WTI beyond $101.79 per barrel.

AI Stocks: Movement in credit indicators for CoreWeave and NeoCloud, which rebounded recently.

Semiconductors: Supply-demand dynamics between AI infrastructure demand forecasts and concerns over Chinese semiconductors.

Domestic Markets: The strength of the rebound in large-cap stocks following a -1.65% drop in the MSCI Korea index and a +1.84% gain in overnight futures.

Key Indicators

Dollar Index: 101.71 (-0.26%)

Oil Prices: $101.79 per barrel (-1.80%)

Volatility Index: 17.31 (-6.13%)

U.S. 10-Year Treasury Yield: 5.11%

MSCI Korea Index: -1.65%

Overnight Futures: +1.84%

Source: Stock Story by Market Analyst, t.me/shmstory

YouTube: Market Analyst TV, www.youtube.com/@blueoak1004

This article has been reconstructed with the permission of the author from a post on the Stock Story by Market Analyst Telegram channel. All content may contain errors and is not to be construed as buy or sell recommendations, nor should it be used as a basis for investment decisions. The content of this post cannot be used as legal evidence under any circumstances.