Semiconductor and memory chip company SK Hynix CEO Kwak Noh-Jung attends the company's opening bell ceremony at the Nasdaq market on the day of their IPO, New York City, July 10.Angelina Katsanis/Reuters
Canadian investors now have a new pathway to invest in the hardware behind artificial intelligence data centres, after South Korean chipmaker SK Hynix debuted on the Nasdaq on Friday.
Trading in SK Hynix American Depositary Receipts followed a US$26.5-billion share sale, the largest listing by a foreign firm in the U.S. ever. The ADRs surged over their offer price on Friday, before closing up almost 13 per cent on the day. Each U.S.-dollar-denominated ADR represents 10 SK Hynix common shares.
While experts said the listing was likely a net positive for North American markets, which have seen years of declines in the number of listed companies, they cautioned that Canadian investors shouldn’t expect a smooth ride. Even those who have tried to diversify their portfolios could face risks.
Garnet Anderson, president and head of portfolio management at Tacita Capital in Toronto, said wider adoption of artificial intelligence would be spread out over an “elongated period.”
“We’re going to have cycles of growth … and I just don’t think it will be 0 to 60 all the way through,” Mr. Anderson said.
“There are going be some tears along the way because there’s just too much capital at play for it all to be winning capital.”
The listing comes at a bumpy time for semiconductor stocks, including SK Hynix itself. The company’s Korea-listed shares have lost more than a quarter of their value in less than a month, after touching a record high in late June. The Philadelphia Semiconductor Index, which tracks U.S.-traded chip companies, has shed more than 11 per cent since its own late-June peak.
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At the same time, those falls pale in comparison to recent rises, driven by euphoric investor expectations of demand for semi-conductors by companies building data centres and AI capabilities.
Even following the recent slump, SK Hynix’s Korean shares are up more than 230 per cent this year alone and U.S. chip manufacturer Micron Technology, Inc. has risen around 240 per cent in the same time.
In a recent research report, Morningstar analyst Jing Jie Yu calculated a fair value for SK Hynix’s Korean shares at 2.4-million Korean won (around $2,260), a premium of about 10 per cent above their Friday close, with tight supply conditions boosting memory chip prices.
Analysts say that by broadening the company’s investor base, SK Hynix’s ADRs may help to improve the company’s liquidity and reduce its valuation gap against companies like Micron.
“If I was another foreign company that didn’t have ADRs or a listing in North America, I would be jumping on this bandwagon and planning my ADR issue at some point in the very near term, too,” said Josh Sheluk, portfolio manager and chief investment officer at Verecan Capital Management.
But Mr. Sheluk said that elevated expectations and what he called “insatiable” hype around companies like SK Hynix were “usually a recipe for disappointment as an investor.”
He pointed to the example of Samsung, which this week said it anticipated a 19-fold jump in second-quarter profits. Following the statement, its shares dropped 10 per cent.
“It’s kind of mind-boggling to think how much the profitability has increased, yet even that is not enough to satiate the market.”
Mr. Sheluk said Verecan’s largest exposure remained in the technology sector, but that he was not chasing after companies in what he said was the “historically very cyclical” memory and storage business.
He also warned investors to be “a little bit more thoughtful about what your diversification looks like today.”
Those seeking diversification in global emerging markets, for instance, may not realize that nearly one-third of the MSCI Emerging Markets Index is made up of Taiwan Semiconductor Manufacturing Company, Samsung Electronics Co. and SK Hynix. A better option may be to invest closer to home, such as in a broad Canadian market index.
“Canada is a good example of a market that doesn’t have a lot of technology exposure, that can actually provide some pretty good diversification these days to a global portfolio,” Mr. Sheluk said.
With a report from Reuters.