[Seoul Weekend Wrap] Oil Surge Sends Markets Lower, Semiconductor Rebound Offers Hope

Geopolitical Tensions Drive Up Oil Prices and Yield Rates; U.S. Markets See Broad-Based Weakness, Except for Energy and Tech

Market Overview

• ① Escalating U.S.-Iran Tensions: Oil Prices Surge, U.S. 10-Year Yield Nears 5%

The rising tensions between the United States and Iran have triggered a sharp increase in global oil prices. Following the raised prospect of a U.S. attack, Iran has also stated its willingness to retaliate by targeting economic and civilian facilities if attacked. Adding to the tension, the U.S. Ambassador to Turkey mentioned the possibility of an attack this weekend, and reports indicate that the number of ships attacked in the Strait of Hormuz in October has risen to 28. The combination of decreasing oil reserves and heightened geopolitical risks has further fueled the surge in oil prices. This oil price hike has also impacted the bond market, with the U.S. 10-year Treasury yield climbing to 4.99%, nearing the 5% mark once again. Excluding the energy, tech, and real estate sectors, all other sectors saw declines, weighing on the broader market.

② Solidigm IPO Withdrawal Impact: SK Hynix ADR Soars

The positive effect of Solidigm's IPO withdrawal, which drove SK Hynix's rebound in the domestic market, continued to be felt in the U.S. market.

SK Hynix's ADR surged by approximately 4%, and key semiconductor stocks such as Micron, AMD, and Marvell Technology also strengthened.

As analysts noted that Solidigm's IPO plans were a burden on SK Hynix's shareholder value, related concerns have been alleviated.

SpaceX also rose, driven by optimistic outlooks following its strong performance.

However, CoreWeave faced continued uncertainty regarding its funding, leading to a decline, while Bloom Energy plummeted due to a deterioration in its free cash flow.

Western Digital, despite strong earnings, weakened as the market highlighted the burden of increased future investments.

Within the AI sector, there is a clear differentiation in stock prices based on actual performance, cash flow, and funding methods.

③ Performance vs. Cash Flow: Shifting Evaluation Criteria for AI Stocks

During this earnings season, free cash flow and capital expenditures have been as influential as revenue and profits in determining stock prices.

Late-Session Selling Pressure Weighs on AI Stocks

Even with strong financial performance, companies are seeing their stock prices decline if investment costs rapidly increase or free cash flow deteriorates.

In the current high-interest rate environment, the market is scrutinizing AI investments more rigorously, focusing on their sustainability and the ability to translate investments into actual cash generation.

While Meta, with its highlighted stock issuance plans, weakened, SpaceX, which did not emphasize additional funding needs, relatively outperformed. This shift indicates a transition from a market phase where AI-related stock prices rose solely based on announced large-scale investments to one where investors consider both investment costs and monetization capabilities.

Apple, with its relatively lower exposure to AI investments and substantial cash holdings, has been a recent relative outperformer. At one point during the trading session, Apple's market capitalization briefly surpassed that of NVIDIA.

Next Week's Checkpoints

Regarding the recent adjustments in AI-related stocks, Wall Street offers varying perspectives. Wellington Alt suggests that the recent corrections, rather than indicating a decline in demand, are part of a process that aids long-term growth, as AI demand itself has not decreased. Similarly, Yaden sees the partial cooling of AI stock overheating as a positive development.

Market Outlook: Semiconductor Sector and Beyond

The semiconductor industry remains resilient, with performance and demand showing no significant shifts. SK hynix's ADR rebounded post-Solidigm listing withdrawal, and key memory stocks like Micron also gained, indicating potential rebound prospects for individual stocks post the recent sharp decline.

Next week, cash flow and capital expenditure forecasts for AI companies will continue to be pivotal evaluation criteria. It is essential to monitor the differentiation in stock prices between companies with rapidly increasing investment costs versus those generating actual cash.

The Middle East situation and international oil prices are also key variables. With the 10-year U.S. Treasury yield nearing 5% due to oil price increases, a relaxation of geopolitical tensions and further movements in oil and interest rates could impact tech stocks and foreign inflows.

The MSCI Korea index rose 1.48%, while overnight futures fell 0.19%. In the upcoming trading day, the domestic market will assess if the rebound in U.S. semiconductor stocks translates into improved supply dynamics for large-cap semiconductors like Samsung Electronics and SK hynix.

Bloomberg | Financial Insights

Market Analysis: Navigating Late-Session Selling Pressure

Late-session selling pressure dominated the markets yesterday, erasing intraday gains and prompting margin call liquidations. The commercialization phase saw a notable shift, with yield rates taking center stage.

In early trade, the focus was on [Company X]'s performance, which experienced a [X%] dip, triggering concerns among investors. This led to a wave of selling, particularly in the technology sector.

As we approach the [Date], market participants are closely watching [Industry Y]'s performance, as it could influence overall sentiment and potentially drive further volatility.

> *Disclaimer: This article is for informational purposes only and does not constitute investment advice. All content may contain errors, and no liability is assumed for any actions taken or omitted based on the information provided.*

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