Goldman Sachs Lowers Korea Stock Price Target by 25% but Considers "Storage Valuation Overly Pessimistic"; Korea Stock Valuation Now "Lowest in the World"

Goldman Sachs has significantly lowered its target price for the South Korean stock market, while also warning that the market's pessimistic pricing of the semiconductor sector has become severely disconnected from fundamental reality.

According to a Bloomberg report on October 25, Goldman Sachs strategists on Friday (October 23) cut their 12-month target for the Korea Composite Stock Price Index (KOSPI) from 12,000 points to 9,000 points, a reduction of 25%. This adjustment comes after the KOSPI has fallen more than 35% from its peak in June. Nevertheless, Goldman Sachs maintains a positive view on South Korean equities, noting that the revised target still implies more than 60% upside from current levels and clearly stating that "the market is pricing an excessively pessimistic fundamental outlook."

The cooling of AI-driven trading has triggered a tech stock sell-off, dragging South Korea from one of the hottest major markets this year into the deepest valuation trough. According to Bloomberg data, the KOSPI's 12-month forward P/E has dropped to around 4x—an extremely low level unseen among the 18 trillion-dollar markets since 2006—and is now about half the valuation of Indonesia's Jakarta Composite Index (8x P/E). Meanwhile, some investors believe that this sell-off presents a rare buying opportunity.

AI Trading Reversal Hits Korean Stocks Hard, Forcing Goldman to Slash Targets

The report states that Goldman Sachs strategists lowered the KOSPI target mainly due to the need for "more conservative valuation assumptions" after the benchmark index had plummeted over 35% from its June peak.

It is noteworthy that Goldman has raised this target several times this year, with the most recent revision upwards in June—and maintained the 12,000-point target throughout the subsequent global AI stock sell-off. This downward revision marks a significant shift in Goldman's outlook for the Korean market.

Chip giants like Samsung Electronics and SK Hynix have made KOSPI a barometer of AI-driven trades. Investor doubts about the sustainability of massive AI infrastructure spending continue to intensify, compounded by rising financing costs and insufficient return signals, causing sell-off pressure to spread from the tech sector to the broader Korean market.

Memory Chip Valuations Imply "65% Profit Drop"—Goldman Sees Pricing as "Extreme"

Despite lowering its target price sharply, Goldman Sachs strategists explicitly pointed out that current semiconductor sector pricing is seriously out of reasonable bounds.

Goldman Sachs estimates that current valuations in the semiconductor sector imply that industry profits will plunge by 65% by 2027—a scenario Goldman deems "overly pessimistic." The report notes that the market is pricing in an "overly negative fundamental outlook," while the revised target price is simply to reflect more conservative market assumptions rather than a fundamentally bearish view from Goldman Sachs.

Outside the memory chip sector, other stocks accounting for about half the index weight are currently trading at a forward P/E of 7.6x, also near historic lows. Goldman Sachs states that, at current levels, the Korean market still offers "attractive risk-reward."

Goldman continues to be optimistic on stocks related to power, industrials, corporate governance improvement, and those benefiting from domestic reflation and the Korean Wave.

Valuation Drops to "World’s Lowest"—Korean Stocks Now Half as Cheap as Indonesia

According to Bloomberg data, the KOSPI’s 12-month forward P/E has dropped to around 4x, which, since 2006, has never occurred in any of the 18 major markets with over $1 trillion in market capitalization at the start of the year.

By contrast, Indonesia’s Jakarta Composite Index—despite also facing possible MSCI double downgrades and questions about market investibility—still trades at a forward P/E of around 8x. Korean equities are now valued at less than half those of Indonesia.

This collapse in valuation comes despite no particularly negative macro fundamentals in Korea. South Korea’s exports are expected to surpass $1 trillion this year, with robust chip demand; the Bank of Korea also stated that GDP growth this year and next should be "significantly higher" than previous forecasts. However, ongoing doubts about the memory chip cycle, AI capital expenditure prospects, and rising borrowing costs have led to persistently bearish investor sentiment.

Hui Ling Loh, Managing Director at ACG Management, said,

“Concerns surrounding aggressive AI investments so far have extended further, enough to offset solid earnings and guidance. Investors are also weighing the impact of rising borrowing costs on AI-related stocks and the demand for safe-haven assets.”

Some Investors See the Sell-off as a Buying Opportunity, but Divisions Remain

Despite the bearish market sentiment, some investors have started viewing this round of sell-offs as a window to buy on dips.

The KOSPI has fallen about 40% from its June peak, yet 12-month forward earnings forecasts during this period have risen 22%, with the disconnect between stock prices and earnings expectations further highlighting how undervalued the market is. Year-to-date, the index is still up 31% overall.

Mark Matthews, Head of Research Asia at Julius Baer, said, “AI demand is still vastly outstripping supply, so whenever we see a major pullback like recently—especially an overnight collapse in semiconductor stocks—it presents a great buying opportunity.”

However, there are disagreements over when sentiment will truly bottom out and whether valuations can provide a reliable reversal signal. This round of selloffs has also sparked deeper discussions: In an era of technological transformation and profound uncertainty, can traditional valuation metrics still provide reliable investment guidance?