Foreign stocks: too expensive?) Semiconductor Stocks and Meme Stocks: A German Analyst's Perspective

Enthusiasm for AI is boosting NVIDIA's stock price and sales, and is also boosting stock prices of other semiconductor manufacturers such as SK Hynix and Taiwan Semiconductor. Gamestop, a meme share company, is also doing well.

July 18, 2024 Frankfurt (stock exchange)

In foreign stock trading on the German Exchange marketplace, US high-tech stocks and international semiconductor stocks continue to occupy the top positions. The 10 most traded international stocks include 6 of the “Magnificent Seven,” namely NVIDIA, Apple (US0378331005), Microsoft (US5949181045), Amazon (US0231351067), Tesla (US88160R1014), and Alphabet (>US02079K3059<). Also, the top 10 include Korean semiconductor manufacturer SK Hynix, Chinese automobile manufacturer BYD (CNE100000296), US game retailer Game Stop, and Danish pharmaceutical giant Novo Nordisk (DK0062498333). Novo Nordisk is profiting from the huge success of marketing injections.

SK Hynix, one of the world's largest semiconductor manufacturers, announced in May that most of its production capacity will be full until 2025. Mass production of next-generation HBM chips, which are important for AI platforms such as ChatGPT, is also scheduled to begin in the 3rd quarter of this year. The price of GDR (US78392B1070) traded on the German Stock Exchange rose from 90 euros and hit an all-time high of 176 euros during this year's peak. The current price is still 142 euros.

However, Torsten Tied of aktienfinder.de, one of Germany's most successful self-funded startups and has over 0.12 million members, is skeptical about further stock price increases: “In contrast to Nvidia, SK Hynix faces strong competition from Micron Technology and Samsung Electronics. Additionally, the NAND and DRAM memory businesses are extremely cyclical and are reflected in fluctuations in margins and sales. Therefore, SK Hynix is unsuitable for long-term investment.” Speculators can bet on momentum, but stock prices have already been evaluated in a sporting way and should be treated with caution on the fundamental side.”

Incidentally, another semiconductor company is in 11th place in the trading volume ranking: Taiwan Semiconductor. The price of ADR (US8740391003) also recently hit an all-time high of 179 euros. Currently it's still 162 euros. At the start of 2024, it was only 92 euros. However, NVIDIA (>US67066G1040>) still has the highest trading volume among foreign stocks, and there is a big difference. The rise in stock prices has stagnated slightly, and it has peaked at 132 euros and is currently trading at 112 euros. However, the stock price at the beginning of 2024 was only 44 euros, and the stock price at the beginning of 2023 was just under 14 euros.

According to Teed, profit margins and sales have exploded due to demand driven by AI and technological superiority over competitors, and there is still no end in sight to the success story. PER is 75 times, which is much higher than the 10-year average of 44 times, but due to rapid profit growth, PER will drop to 30 times by the end of 2026.” I think this stock is still worth buying.”

Tech expert Stefan Waldhauser, who has been investing in technology and growth companies for over 35 years, warned of an AI bubble more than a year ago and is still critical.

He mentioned the evaluation of Sequoia, a major venture capital firm in Silicon Valley and an early investor in NVIDIA.” Sequoia is currently very skeptical about whether an extremely expensive investment in AI data centers will bring a positive return on investment.” For sustainable sales, we must ultimately make money with AI applications. However, in his opinion, end customers are not prepared to spend significantly more money on AI features and software products than previous software. His conclusion was: “Investors should prepare today for the fact that AI will fall far short of current inflated expectations in the next few years.”

GameStop (US36467W1099) has experienced another sharp rise in stock prices in recent months. The stock price in April was 9 euros, but then surged 2 times, reaching 73 euros at its peak. Currently, it is once again staying at 25.30 euros. Behind this is probably investor Keith Gill, once again known in the market as “Roaring Kitty.” He had already raised his stock price three years ago.

Waldhauser is surprised that “Roaring Kitty” has once again breathed fresh air into gamests' stock prices. “At the end of the day, investors just lose money on meme stocks like this. “No matter how many times you warn about this kind of gambling, it's not enough,” he emphasizes. Also, meme stocks are nothing more than investments in companies, and in the long run, stock prices will approach the actual value of that company. “In the case of meme stocks, this value is usually only a fraction of the overhyped share price. In other words, the stock price of meme stocks will crash in the long run.

Meme stocks are stocks that experience an unexpected rise in stock prices due to social media trends or group actions by small investors, but after that, they can also lose significant value. They are called “memes” after interesting images and videos (“memes”) that are widely distributed on the internet.

Torsten Tead's evaluation of Game Stop was also “Get your hands off me!” It is. The stationary retail business of computer games is a dying business. The company probably wouldn't exist today if it weren't saved by the hype caused by memes. “The current business model isn't going well, and the stock price is 27 dollars, which is 330 times PER, and has received an evaluation that exceeds right and wrong.