Key insights
- Jefferies notes that Samsung and SK Hynix semiconductor stocks have seen a rally surpassing the IT bubble, indicating strong performance and potential for further upside. While acknowledging increased volatility ahead, the firm suggests a buy-and-hold strategy over active trading. Early warning signs of a collapse are not yet apparent, implying continued strength in the sector, which could positively influence global technology markets and related US equities.
Investing.com -- South Korean semiconductor stocks Samsung Electronics (KS:005930) and SK hynix have risen 798% from their 500-day low as of Monday, surpassing the 717% increase recorded during the IT bubble, according to Jefferies.
The rally in the two stocks began in late May. Jefferies stated that the stocks have additional upside potential, citing that bubbles typically extend the leadership of top-performing stocks and turn them into historical outliers, while support from earnings and retail participation remains strong.
Jefferies noted that the rally will not follow a linear path going forward. The firm explained that volatility increases in later stages of such rallies, making it difficult for investors to distinguish between market noise and broader trends. This volatility was observed in March and is expected to occur multiple times in the future.
The firm suggested that under elevated volatility conditions, active trading strategies of buying low and selling high may yield lower returns compared to a buy-and-hold approach. Jefferies added that day-to-day trading decisions during volatile periods may affect returns realized weeks or months later.
Jefferies advised looking for early warning signs of a bubble collapse, including economic slowdown, irreversible interest rate increases, or artificial intelligence firms' inability to raise funds. However, the firm stated it believes there is still time before such signs emerge.