[R&E] Memory Semiconductors Expand Price Gains in Q1… Leading Market Resilience Driven by Earnings Improvement

[R&E: Research & Epoch]
News Epoch's signature report that envisions a new era of investment by analyzing vast market data.

Market Overview: Key Indicators and Trends

The U.S. stock market closed with a strong rebound yesterday, driven by better-than-expected macroeconomic indicators and expectations of easing geopolitical risks. The news that the U.S. ISM Manufacturing Index for January recorded 52.6, entering an expansion phase, heightened expectations for a soft economic landing. Accordingly, the S&P 500 (+0.63%) and the tech-heavy NASDAQ (NASDAQ: .IXIC) (+0.58%) rose across the board, recovering risk appetite.

In contrast, the domestic stock market recorded a sharp plunge, with the KOSPI (-5.26%) and KOSDAQ (-4.44%) falling due to overlapping profit-taking from short-term surges and uncertainty surrounding the next Fed Chair. In particular, the KOSPI was pushed significantly below the 5,000 mark, and as risk aversion took hold, the KRW/USD exchange rate faced upward pressure to 1,451.9 won.

However, the prevailing analysis is that this correction in the domestic stock market is an excessive decline. The sharp plunge in oil prices (-4.71%) and the sell-off in metal prices the previous day are temporary phenomena, and the improvement in the fundamentals of major domestic sectors, which are the market's leading drivers, is becoming more distinct. The key is that as the upward trend in memory semiconductor prices unfolds steeply, upward revisions to corporate profit forecasts for 2026 have become highly likely. The U.S. Treasury's reduced borrowing estimates for the first quarter and the maintenance of liquidity conditions are expected to support short-term resilience in the domestic stock market.

Key Industry Issues and Insights

The memory semiconductor industry is showing signs of forming a supplier-dominated market at a faster pace than initially expected. The fixed price of PC DRAM in the first quarter of 2026 is projected to record a growth rate of +105% to +110%, exceeding previous forecasts. Alongside this, the fixed price of server DRAM is also highly likely to rise by +88% to +93%. This is the result of suppliers' limited inventory situations and intensifying competition among cloud service providers to secure volume. Such price strength is also evident in actual indicators, with DRAM export value in January increasing by +175.5% year-on-year, and flash memory export value also surging by +366.2%, underpinning the industry's recovery.

The recovery in the memory industry is spreading to the downstream IT components sector. PCB specialized company Korea Circuit (008060) succeeded in turning a profit, recording Q4 sales of 448.1 billion won, driven by the expansion of server-oriented DRAM and SSD shipments. In addition, as Murata Manufacturing (TYO: 6759), the global No. 1 MLCC company, achieved its highest-ever new orders and considers price hikes amidst solid AI server demand, a strong turnaround trend across the entire IT components sector is expected.

A structural boom is also continuing within traditional industries. In the shipbuilding sector, Daehan Shipbuilding posted Q4 sales of 350.4 billion won and an operating profit of 95.3 billion won, demonstrating a high operating profit margin of 27.2%. Hyosung Heavy Industries(298040), which is benefiting from an increase in demand for power equipment, achieved a Q4 operating profit of 260.5 billion won, exceeding market expectations by over 25%. Meanwhile, Samsung SDI(006400) recorded an operating loss of approximately 300 billion won in the fourth quarter, but is pursuing a turnaround to profit within the year by narrowing its deficit through growth in the ESS division and the effect of receiving subsidies.

Market Signals

• Intensifying Upward Trend in DRAM Prices: The fixed price of PC DRAM in the first quarter of 2026 is projected to rise by up to 110% compared to the previous quarter, suggesting a robust structural recovery in the memory semiconductor industry.

• Securities Sector Index Breaks New Highs: The KRX Securities Index in January recorded a growth rate of +43.0%, outperforming the KOSPI by 19.0 percentage points. This reflects expectations of profitability improvement due to an increase in average daily trading volume (62.3 trillion won).

• Accelerating Competition in Next-Generation Obesity Treatments: The results of a combination clinical trial of Zepbound by Arrowhead Pharmaceuticals (NASDAQ: ARWR) and Eli Lilly (NYSE: LLY) showed a significantly faster rate of weight loss compared to monotherapy, raising the possibility of market reorganization.

Epoch View: Investment Implications

Yesterday's volatility in the domestic stock market is analyzed as a temporary overreaction by the market to uncertainties in the macroeconomic environment. Today, it is judged that resilience to recover yesterday's decline will emerge. As an investment strategy, it is efficient to focus on sectors where earnings improvements are becoming visible and pricing power has been proven. In particular, the rise in unit prices of memory semiconductors is expected to be the core driver of the future corporate profit cycle.

Therefore, a strategy of rebuilding portfolios centered on leading stocks in the semiconductor and related components sectors is valid. Additionally, maintaining exposure to industrial sectors backed by structural growth, such as power infrastructure and shipbuilding, is essential from a long-term perspective. The financial sector, which is expected to benefit from enhanced shareholder return policies and increased trading volume, is also in an attractive range. However, for the secondary battery sector, it is necessary to maintain a cautious approach until signals of passing the industry bottom become clear.