Korean brokers weigh US data-centre risks for chip suppliers after the midterms

At the Nov. 4 close in Seoul, Samsung Electronics (005930.KS) fell 0.68% to 218,000 won and SK hynix (000660.KS) slipped 0.14% to 1,396,000 won, while the KOSPI gained 0.62% to 5,683.80.

Korean broker notes published on Nov. 5 looked at what the Nov. 3 US midterm elections, in which Democrats won majorities in both houses of Congress, could mean for data-centre spending and for the Korean suppliers of AI hardware. Share prices in this article are from the Nov. 4 close; the broker views are from notes available on Nov. 5, plus a Daishin note from Nov. 4. In US trading on Nov. 4, Kiwoom Securities noted, large cloud operators such as Amazon and Microsoft rose while Micron and Nvidia fell and the Philadelphia semiconductor index lost 3.1%.

New projects versus work already under way

A nationwide halt to new data-centre construction faces hurdles, Kiwoom Securities said in a Nov. 5 strategy note, including the presidential veto, differing interests within the Democratic Party and US AI competitiveness. Measures such as making companies bear more of the cost of grid expansion, or limiting permits in some areas, were being discussed as alternatives.

Those measures could raise costs and slow new projects, the brokerage said. That would ease capital-spending pressure and help free cash flow at the large cloud operators, or hyperscalers, but weigh on memory and power-equipment suppliers that depend on their orders.

For data-centre investment already under way, however, Kiwoom expected no major disruption to schedules. It therefore saw limited damage to existing supply contracts and to earnings forecasts for AI infrastructure stocks. The firm added that the new Congress takes office in January.

How much investment costs could rise

Concerns about slower AI capital spending, including on data centres, were somewhat excessive, iM Securities judged in a Nov. 5 report. It linked the rise in US stock indices after the vote partly to hopes that slower data-centre spending would improve hyperscalers’ free cash flow.

The cost side was the focus of a Nov. 5 macro comment from SK Securities. It identified grid-expansion charges and possible reductions in tax incentives as factors that could raise upfront costs. Minimum electricity-use commitments could also increase fixed costs when utilisation is low.

The same comment argued that Democratic control of Congress would constrain new legislation and budgets more readily than it would reverse existing presidential policies, so the pace and scope of policy changes mattered more than a sharp change of direction.

Financing concerns and memory earnings

How large technology companies will pay for AI infrastructure was the subject of a Nov. 4 strategy report from Daishin Securities, written ahead of the vote. It said planned and proposed corporate bond issues by big US technology companies had renewed concerns about how AI spending would be funded, weighing on sentiment across the AI supply chain.

Daishin said higher memory prices supported earnings expectations for Samsung Electronics and SK hynix, but that AI financing concerns continued to limit how far stronger memory earnings could lift the wider Korean market.