[R&E] AI Rally Reignited, Philadelphia Semiconductor Index Surges 5.70%... HD Hyundai Electric Expected to Continue Benefiting from Power Infrastructure

[R&E: Research & Epoch]

This is News Epoch's signature report that analyzes vast market data to provide a perspective on the new era of investment.

Market Overview: Key Indicators and Trends

Last weekend, the US stock market closed with S&P 500 (+1.97%) and NASDAQ (+2.18%) as strong risk-on sentiment flowed in. In particular, the Philadelphia Semiconductor Index, a key indicator of the AI industry, surged 5.70%, bringing market expectations for the AI hardware sector to a peak once again. Despite this positive atmosphere in key global stock markets, the domestic stock market underwent a correction of KOSPI -1.44% and KOSDAQ -2.49% on the previous trading day due to the spread of external uncertainties and the aftermath of foreign investors' net selling of 3.3235 trillion KRW in the KOSPI.

However, internally within the domestic market, clear leading sectors have emerged. The banking sector surged 2.92%, outperforming the market return, driven by strong Q4 earnings and the announcement of aggressive shareholder return policies. Furthermore, with macro indicators such as the improvement in the University of Michigan Consumer Sentiment Index (57.3) showing a solid trend, the domestic stock market today is certain to see a strong rebound centered on technology stocks based on the AI semiconductor rally. The risk-aversion sentiment that led the decline in the domestic market the previous day is expected to ease, and liquidity is analyzed to be reorganized around the industrials and financial sectors where AI infrastructure expansion and structural growth have been confirmed.

Key Industry Issues and Insights

Global AI investment is showing signs of actual capital expenditure (Capex) expansion across the entire hardware supply chain, despite concerns about structural volatility in the software industry. The 2026 Capex execution scale of the four major North American hyperscalers exceeds market expectations, supporting the sustainability of AI infrastructure deployment. In this environment, semiconductor test solution company ISC saw its Q4 operating profit surge 192% year-on-year, driven by expanded orders for non-memory mass production test sockets and increased volume towards hyperscalers, recording an operating profit margin (OPM) of 30%. In the equipment sector, TES exceeded market expectations with a 35% increase in Q4 sales, boosted by equipment shipments for new DRAM fabs.

Meanwhile, the explosive surge in power demand from AI and advanced manufacturing is driving explosive growth in the power infrastructure and industrials sectors. Leading the ultra-high voltage transformer market, HD Hyundai Electric saw its North American sales skyrocket 205% year-on-year in Q4, achieving a 93.0% growth in company-wide operating profit. Submarine and ultra-high voltage cable specialist Taihan Cable & Solution also recorded its highest quarterly performance ever, with Q4 operating profit surging 99.0% due to an expanded proportion of high-margin products. Thus, the massive trend of accelerated global power grid investments and energy transition is a key factor maximizing the profit leverage of related sectors.

The construction and financial sectors are emerging as core pillars of the domestic corporate value enhancement (Value-up) strategy. Major financial holding companies announced aggressive shareholder return policies along with improvements in core business fundamentals, despite large-scale one-off costs. Notably, Woori Financial Group is accelerating capital efficiency enhancement by deciding on a 200 billion KRW share buyback and cancellation, targeting a total shareholder return ratio of around 45% in 2026. In the construction sector, although large construction firms reflected provisions related to unstarted project sites and costs from overseas construction delays, housing and architecture margins remained solid at 17.1% for DL E&C and 17.3% for GS E&C, raising expectations for full-fledged earnings growth in 2026. In the consumer goods sector, Lotte Shopping is leading the recovery of the domestic retail industry with its Q4 operating profit increasing by 54.7%, driven by improved department store performance and base effects.

Market Signals

• Strong Semiconductor Test Earnings: ISC proved unrivaled profitability as its Q4 operating profit surged 192% year-on-year, driven by expanded orders for non-memory mass production sockets and increased volume towards hyperscalers.

• High Growth in Power Infrastructure: HD Hyundai Electric is monopolizing the benefits of global power grid investments, with its North American subsidiary's sales surging 205% year-on-year and its Q4 operating profit increasing by 93.0%.

• Expansion of Financial Holding Companies' Shareholder Returns: Major banks aim for a total shareholder return ratio in the mid-40% range through 2.7 trillion KRW in combined share buybacks in 2026, making the resolution of undervaluation highly likely.

Epoch View: Investment Implications

Today's market is highly likely to see a positive flow centered on technology stocks, inheriting the strong upward momentum of the US AI and semiconductor sectors. Although concerns have been raised recently about the revenue models of software companies following the spread of AI, AI is ultimately a substantive driver of demand creation accompanied by infrastructure and hardware investments. Therefore, MLCC demand is improving around AI servers and automotive electronics, and an investment strategy across the entire hardware supply chain, including AI substrates (MLB, CCL, ABF), is essential.

In the domestic stock market, the re-evaluation of traditional industry sectors that enhance capital efficiency through solid earnings and shareholder return policies is expected to continue. In particular, the financial holding and construction sectors have proven the fundamental stability of their core businesses despite Q4 one-off costs, and aim for a high total shareholder return ratio compared to the market through successive dividends and expanded share buybacks. Stocks with visible earnings improvements, such as Kumho Tire, which turned to a surplus with retained earnings of 122.2 billion KRW, and Lotte Shopping, whose sales to foreigners increased by 29%, should also be noted from a portfolio diversification perspective.

This content was generated using News Epoch's proprietary AI algorithm, which tracks and analyzes public data from research centers of major domestic securities firms in real-time.
Please note that this is an objective summary based on collected data, and does not constitute investment advice or a recommendation for any specific stock.