“It is clear that investment in AI (artificial intelligence) continues to be necessary, but what is important now is whether companies can afford to continue making such investments.”
Lee Young-gon, head of Toss Securities Research Center, who was interviewed by Yonhap News at Toss Securities headquarters in Gangnam-gu, Seoul on the 21st, said that the AI investment cycle is still in progress.
The explanation is that structural growth will continue as it has only been three to four years since the AI industry began in earnest, but it has recently become important to check whether the situation in which big tech companies are investing more money than they earn is sustainable.
Director Lee diagnosed that there is a possibility that the domestic stock market will continue to experience a “lull phase” in the second half of this year, with fewer transactions compared to the first half.
In addition, he said that the biggest differentiator of Toss Securities Research Center, which celebrates its second anniversary this month, is 'research for individual investors.' Based on a structure that does not operate as an institution or corporation, we will easily interpret and convey information that professional investors encounter, and will not avoid topics that may be uncomfortable for companies or the market.
Recently, Director Lee presented an analysis regarding the rumor of SK Hynix [000660]'s plan to list Solidigm, its U.S. subsidiary, on the possible impact on the equity value of existing shareholders and the possibility of diluting shareholder value. He also evaluated that "Solidig's split listing is an unfavorable issue for existing SK Hynix shareholders."
Director Lee is a researcher at Hanwha Investment & Securities and Hana Securities Research Center and has been in charge of investment strategy, corporate analysis, and portfolio strategy. He won the Korea Analyst Award for three years from 2018 to 2020 and joined Toss Securities in February 2023.
Below is a Q&A with Center Director Lee.
-- It has been two years since the Toss Securities Research Center was launched. What did you want to take away from existing securities research centers the most?
▲ The target is different. A typical securities company's research center writes data for institutional investors and conducts corporate sales, but we do not conduct institutional sales but conduct research for individual investors.
There is an information gap between professional investors and individual investors, and our goal since launch has been to resolve that gap. In addition, we are making efforts to visit the site in person to deliver vivid investment information that is difficult for individual investors to check.
-- Is it a similar reason to actively cover topics such as SK Hynix Solidigm's listing issue and shareholder return?
▲ That’s right. Slightly sensitive or sensitive topics may be uncomfortable or difficult to deal with in securities company research. However, I believe that we should not avoid topics just because they are uncomfortable or difficult. Toss Securities Research Center has no direct relationship with companies, such as IB (corporate finance) or corporate sales, so it can speak out from a more independent position.
I am always thinking about finding forms of research that others are not doing and things that are essential but not yet well communicated. The fact that it does not present a target price or investment opinion is in a similar context. Rather than focusing on the target stock price itself, we hope that individual investors will become more empowered to invest on their own by considering the process by which the target stock price was arrived at.
-- There are still concerns in the market that AI investment is overheated. What stage do you think the AI investment cycle is currently at?
▲ Still in progress. I think the investment cycle can continue for a bit longer term.
It has only been 3 to 4 years since the AI industry began to be visible. I think it is a growing industry that is still in its beginning stages. There may be concerns that the initial investment may be excessive as it is made too hastily in a short period of time, but AI investment is still continuously needed.
We are meeting not only big tech companies but also many material, component, and equipment companies in overseas fields. If you check how much CAPA (production capacity) these companies actually need, you can see that investment is progressing really quickly. There is also great impatience among companies not to fall behind in this investment cycle.
Another key issue is whether investments can continue stably. As there are concerns about investing more than you earn or borrowing money to invest, it seems that it will now become more important not only whether investment is necessary but also whether the investor has enough money to cover it.
-- 'AI speed control theory' is also discussed.
▲ In theory, we can sympathize with the need to develop AI ethics, etc. But if competitors continue to invest while someone slows down, they will inevitably fall behind. It is difficult for all investing companies to control the speed together. It is difficult to set the speed by law, and even if it is set, it will not be easy to manage and supervise. Because the speed of technological change is so fast, it is difficult to realistically apply the speed control theory.
-- Recently, trading volume in the domestic stock market has decreased significantly compared to the first half of the year. How do you view the stock market in the second half of the year?
▲ I think it is a relatively restful market. The index is gradually raising its lows, but it is showing a range-bound trend, so trading volume and trading value are bound to decrease compared to the first half of the year.
If the sustainability of semiconductor investment is confirmed through third quarter corporate performance and stock prices rise again to the previous high level, transactions will also increase. Otherwise, it is expected that the so-called lull will continue for the time being in the second half of the year.
-- You have been analyzing the KOSDAQ market for over 10 years. The KOSDAQ revitalization policy is being promoted this year. How do you evaluate the current KOSDAQ market?
▲ In the early 2000s, there was a lot of interest centered around information technology (IT) and dot-com companies, and the media even had a separate section on KOSDAQ. It is difficult to say that the current KOSDAQ is sufficiently active compared to the past. The index exceeded the 1,200 mark this year, but its highest point is around 2,900 points.
KOSDAQ has companies that will serve as growth engines, such as mid-sized companies, materials and parts companies, and venture companies, and an industrial ecosystem can only be created when these companies become more active. It is positive that institutional interest in KOSDAQ has grown. However, it is unfortunate that there are not enough quality small and medium-sized companies that can grow continuously.
-- Recently, the Korea Exchange introduced an aftermarket. There are also concerns that volatility may increase as individual investors' trading hours increase.
▲ You may be affected. However, I don't think it will be a big problem (in the aftermarket) because trading is not as active as the regular market and volatility is not as great.
Increasing investment methods, opportunities, and time has a positive aspect in that it expands options. I believe that managing this well and controlling liquidity is the ‘mystery of management.’
-- What are the variables that investors should pay the most attention to during the remainder of this year?
▲ Among indicators, you should look at the US Treasury bond interest rate. As government bond interest rates rise to the 5% level, interest rate burden is appearing. Interest rates are an indicator of various variables in the economy and also affect the discount rate when evaluating the valuation of companies and the stock market as a whole.
From an industrial perspective, we need to see whether AI investment, especially AI investment centered on semiconductors, can continue. What is important is not only whether there is a need for investment, but whether it is actually possible to invest and whether it is sustainable.
In terms of supply and demand, we need to look at the supply and demand of foreigners in the Korean stock market. Ultimately, it remains to be seen where global funds are moving and whether foreign investors can be introduced again.
