Samsung Electro-Mechanics and LG Innotek stocks declined 40% and 57% respectively from recent highs over a one-month period, according to a KB Securities report issued on May 23 by analyst Lee Chang-min. The analyst attributed the decline to profit-taking following rapid gains and concerns about AI infrastructure investment slowdown. Despite the stock price corrections, the report stated that supply shortages of multilayer ceramic capacitors (MLCC) and packaging substrates for AI servers are intensifying, with the industry boom expected to continue until at least 2028.
Samsung Electro-Mechanics and LG Innotek Stocks Decline 40% and 57%
KB Securities analyst Lee Chang-min stated in the report that Samsung Electro-Mechanics and LG Innotek stock prices fell 40% and 57% respectively from their previous highs over the recent one-month period. The analyst estimated that supply and demand factors, including profit-taking after short-term surges and concerns about AI infrastructure investment slowdown, influenced the decline.
AI Server Component Supply Shortage Intensifies Through 2028
The analyst evaluated that the fundamental conditions of the core businesses determining both companies' performance remain solid despite the stock price decline. The report explained that while demand for MLCC and packaging substrates centered on AI data centers is rapidly increasing, production capacity expansion takes at least 2 years, making it difficult for supply to keep pace with demand growth. Lee stated that the supply shortage of MLCC and packaging substrates for AI servers is intensifying over time, confirmed by strong demand through product price increases, contracts favorable to suppliers, and joint investment in new facilities by customers.
KB Securities Forecasts Q2 Earnings to Exceed Expectations
The analyst forecasted that Samsung Electro-Mechanics and LG Innotek's Q2 earnings will exceed market expectations. The report projected that earnings forecasts for the second half and next year are likely to be further revised upward, and news of long-term supply contracts with big tech companies or large-scale orders will continue. The analyst analyzed that as the supply shortage becomes prolonged, a flow of "sellouts and price increases" similar to memory semiconductors will appear in the MLCC and packaging substrate markets. The report cited the expansion of long-term supply contract ratios and increasing cases of large advance payment receipts as factors enhancing future earnings visibility.
Analyst Recommends Stocks as Top Picks After Valuation Relief
Lee presented Samsung Electro-Mechanics and LG Innotek as top picks in the electrical and electronics sector, stating that valuation burden has eased due to the stock price plunge. The analyst said that from late July when strong earnings are confirmed, stock prices are likely to bottom out and show a gradual upward trend. The report evaluated that the recent repeated sharp stock price corrections are buying opportunities from a mid-to-long-term perspective.
FAQ
What caused Samsung Electro-Mechanics and LG Innotek stocks to decline 40% and 57%?
According to KB Securities analyst Lee Chang-min's report issued on May 23, the stock declines were attributed to profit-taking following short-term surges and concerns about AI infrastructure investment slowdown.
Why does KB Securities expect the industry boom to continue until 2028?
The analyst stated that supply shortages of MLCC and packaging substrates for AI servers are intensifying because production capacity expansion takes at least 2 years, while demand centered on AI data centers is rapidly increasing, making it difficult for supply to keep pace with demand growth.
