The flourishing of AI chips brings tax revenue windfall, South Korea plans to increase investment in semiconductor and data center construction.

Under the leadership of Li Zaoming, the South Korean government is expected to receive record tax windfalls from the boom in AI-driven global storage semiconductors. This unexpected revenue will provide new financial firepower for the government to advance its ambitious agenda of expanding South Korea's AI data centers and semiconductor production capacity. By the close of the South Korean stock market on Monday, SK Hynix saw a record single-day drop of over 15%, while Samsung Electronics fell by more than 10%, dragging down the South Korean KOSPI benchmark index by about 9% and triggering trading halts. Therefore, this latest tax revenue windfall plan may provide a significant boost for the global AI computing industry chain, which has recently experienced a sharp pullback in stock prices, driving the continued surge of the AI super bull market across global stock markets. South Korea is set to leverage the excess tax revenue generated by the AI infrastructure frenzy to invest in areas such as semiconductor, AI data centers, and physical artificial intelligence (physical AI). This move strengthens the government's commitment to long-term infrastructure development in AI computing power and helps stabilize and boost capital expenditure expectations surrounding Samsung Electronics, SK Hynix, and the global AI computing industry chain, sending a positive signal that the "AI computing industry cycle has not yet reached its peak". Recent research reports from Wall Street financial giants such as Bank of America and Nomura pointed out that selling idle computing power by Meta can be seen as an effort to increase utilization and return on capital, rather than indicating a peak in demand; if renting computing power lowers unit token costs, increased applications and call volumes may generate the "Jevons Paradox", leading to an increase in total computing and storage demands. The South Korean government's budget director, Park Hong-geun, stated on Monday that the government has raised its estimate of tax revenue for 2027 to approximately 500 trillion Korean won (equivalent to about $331.6 billion), significantly higher than the previous prediction of 412.1 trillion Korean won. This surge in tax revenue will enable the South Korean government to propose a budget of over 800 trillion Korean won, compared to this year's overall budget of approximately 72.79 trillion Korean won, making it the largest government spending and stimulus plan in South Korean history. This plan includes the establishment of a "Future Preparedness Fund," which will invest tax revenues well above long-term trend levels into strategic investments, rather than one-time fiscal stimulus spending. Park Hong-geun emphasized that the fund will focus on four priority areas: the younger generation, future growth engines, regional development, and talent development. This proposal formalizes President Li Zaoming's strategic use of the tax windfall generated by the unprecedented semiconductor upcycle for long-term investments. Park Hong-geun added that the government also plans to create additional fiscal space by restructuring existing spending plans, rather than solely relying on growth in tax revenue. This new fund will also help provide significant financial support for President Li Zaoming's signature economic agenda, including the three major super projects announced by the South Korean government earlier this month, focusing on semiconductor capacity expansion, AI data centers, and physical artificial intelligence super projects. The government has pledged policy support to drive at least $88 billion in South Korean corporate investments, with core participants including Samsung Electronics and SK Hynix, among other South Korean technology leaders. The 500 trillion Korean won tax windfall will support the ambitions of the two leading players in the global storage semiconductor market and the data center industry. Is this recent drop in AI computing a buying opportunity after the bull market stumbled? The South Korean government will channel the unexpected tax revenue from the supercycle of storage semiconductors into the "Future Preparedness Fund," signaling that DRAM/HBM/NAND storage chips have evolved from a single enterprise profit cycle to a core pillar of the national balance sheet and industrial policy. Tax revenue for 2027 is expected to reach at least 500 trillion Korean won, with the government planning to draft a budget of over 800 trillion Korean won, prioritizing support for the three major super projects in semiconductors, AI data centers, and physical artificial intelligence. This will reduce the execution costs of Samsung Electronics and SK Hynix's capacity expansion through electricity, land, research and development, talent, advanced packaging, and regional infrastructure, creating a positive feedback loop of "chip profit - fiscal revenue increase - industry reinvestment - expansion of AI supply capacity". With SK Hynix plummeting over 15% in a single day and Samsung Electronics down more than 10%, dragging down KOSPI by around 9% and triggering trading halts, this trend is more likely a valuation adjustment triggered by extreme positioning, leveraged funds, profit-taking, and declining profit expectations, rather than a sudden disappearance of AI server orders. Following SK Hynix's recent $26 billion American Depositary Receipt financing, the stock first surged on its debut before investors began to take profits. Investors are now examining the pace of HBM4 shipments, long-term contract price elasticity, and supply growth expectations for 2027-2028; as the industry leader with higher HBM purity, SK Hynix has the greatest structural profit elasticity but also faces the most severe expectation retractions. Taiwan Semiconductor Manufacturing Co., Ltd. (TSMC) saw revenue of 442.68 billion New Taiwan dollars in June, up 67.9% year-on-year. Second-quarter revenue reached 1.27 trillion New Taiwan dollars, up 36% year-on-year, providing a more direct validation that AI infrastructure demand has not undergone a systematic reversal. The actual shipment of advanced process computing chips is still accelerating, reinforcing the bullish logic that storage chips are still on a trajectory of exponential demand growth. In its recent research, the Bank of Korea refuted the notion that the semiconductor cycle has peaked, mainly by answering whether actual supply and demand have reversed, rather than guaranteeing that chip stocks won't decline. The official report points out that AI products are receiving priority in production capacity allocation, and custom chips are increasing supply contract enforceability. By 2026, major supply contracts are expected to be mostly fulfilled, with some companies already negotiating orders for the first quarter of 2027; unlike the prosperity driven by repetitive reordering and inventory accumulation in traditional cycles, the current production of high-bandwidth memory and custom chips is complex, has long certification times, and slow capacity conversion, leading to significantly lower short-term supply elasticity. From a technical perspective, the recent plunge has pushed SK Hynix into oversold territory, with some analysts seeing a short-term buying opportunity, especially as SK Hynix has dropped nearly 40% from its recent high. Nico Rosti, a senior analyst at MRM Research, described SK Hynix's stock price as "deeply oversold," stating, "another week of decline is possible, but we see it as a significant opportunity for buying or increasing positions. A rebound in the South Korean market is expected to push ADRs higher, making it a good buying opportunity." The analyst added. Recently, Nomura, a well-known Wall Street investment firm, released a research report refuting the "semiconductor peak theory" - Nomura's refutation of the "semiconductor peak theory" revolves around the idea that AI cloud infrastructure demand is shifting from GPU shortages to systemic component mismatches. According to Nomura's research framework, AI server revenue is expected to grow by 78% and 76% in 2026 and 2027, respectively, with the number of global data center projects increasing from 240 to 280, including around 50 gigawatt projects. In addition, the deployment of new computing power is estimated to reach 32GW by 2027, with visibility for 23GW by 2028. However, bottlenecks are shifting from NVIDIA Corporation's AI GPUs and Alphabet Inc.'s TPU production capacities to Taiwan Semiconductor Manufacturing Co.'s advanced packaging, storage chips, wafer-level substrates, AI PCBs, copper-clad laminates (CCL), electronic fabrics, MLCCs, glass substrates/ABF substrates, IC carriers, high-end capacitors, power management chips, and high-speed optical interconnect components in data centers. Nomura currently holds a bullish stance on the storage chip sector and is one of the most aggressive large financial institutions in this area. In a recent research report, Nomura raised its target price for Samsung Electronics from 590,000 Korean won to 670,000 Korean won, and for SK Hynix from 4 million Korean won to 4.7 million Korean won, representing potential upside of over 100% for both, implying that these two major storage chip giants, whose stock prices have repeatedly hit new highs since 2025, still have room to rise. Nomura's core bullish logic lies in the fact that AI has transformed storage from a traditional PC/phone cycle commodity into a long-term growth asset for data centers: AI inference requires massive key-value cache (KV Cache), and HBM supply is significantly lagging behind demand. The firm forecasts that global data center capital spending will increase from $1.16 trillion last year to $6.13 trillion by 2030, with memory accounting for a potential increase in data center investments from the current 9% to 23%. Thus, the current valuation of Samsung and SK Hynix at around 6 times their forward 12-month earnings is significantly undervalued and offers a potential revaluation to converge with Taiwan Semiconductor Manufacturing Co.'s valuation of around 20 times. A prominent Wall Street analyst, Gil Luria from DA Davidson, recently set a most optimistic target price of $2000 per share for the leading US storage chip giant, Micron Technology (MU.US). He maintains a "buy" rating, with a previous target price of $1500. Considering Micron's stock price of around $975.56, this target price represents a potential upside of about 105%. If the stock reaches $2000, it would imply a potential market capitalization of around $2.29 trillion, approaching the $2.3 trillion level.