Fund managers who recently re-entered South Korean memory makers' stocks, such as Samsung Electronics Co. and SK Hynix Inc., faced renewed uncertainty after DeepSeek's latest artificial intelligence model raised doubts about the strength of demand. Shares of both companies dipped more than 3% each on Friday, paring a recent rebound from a sharp selloff in July. DeepSeek's announcement that its new models require less high-bandwidth memory exacerbated existing concerns in the tech sector, which was already wary of potential U.S. interest rate hikes. This development has injected fresh volatility into the market for these chipmakers.
DeepSeek's new V4.1 Flash model, launched Thursday, is marketed as a low-cost alternative, offering steep discounts compared to rivals and claiming to outperform some mainstays while using significantly less high-bandwidth memory and solid-state drive storage. This reduction in memory requirements for AI models sparked investor apprehension, leading to the decline in Samsung and SK Hynix stock. The Chinese startup's strategy of providing good-enough, ultra-cheap AI models is reshaping budgeting for AI agents and intensifying price competition among AI developers, creating a "DeepSeek death zone" where rivals must either beat DeepSeek on price or significantly surpass its capabilities.
Despite the immediate market reaction, some analysts view the decline as likely sentiment-driven and short-term. Ha Seok-keun of Eugene Asset Management noted that while DeepSeek's efficiency could fuel near-term demand concerns, new AI models from Meta Platforms and OpenAI are expected to boost overall AI usage and, consequently, chip demand more substantially. Isaac Thong of Aberdeen Asian Income Fund highlighted that South Korean memory stocks remain undervalued, with Samsung trading at 2.7 times book value and SK Hynix at five times, significantly below the Philadelphia Semiconductor Index's 11 times. Similarly, they trade at approximately four times forward earnings, compared to 19 times for global peers, indicating potential for foreign investor return if volatility subsides. However, daily stock movements of 5% or more remain common, reflecting continued high volatility.
