South Korean semiconductor giants Samsung Electronics and SK Hynix are facing growing pressure from investors to increase shareholder returns through higher dividends and share buybacks after reporting record AI-driven profits while remaining cautious on capital allocation plans.
The world’s two largest memory chip manufacturers are generating unprecedented cash flows due to surging demand for high-performance memory chips used in artificial intelligence applications. However, investors argue that the companies should return a larger portion of their excess cash to shareholders instead of allowing massive cash reserves to accumulate.
AI Boom Creates Record Cash Reserves
According to market estimates, Samsung Electronics and SK Hynix are expected to hold a combined $263 billion in net cash by the end of the year.
The figure is significantly higher than the estimated $102 billion cash reserves of AI chip leader Nvidia and even exceeds the combined cash holdings of the remaining six companies in the U.S. “Magnificent Seven” technology group.
The surge has been driven by soaring demand for High Bandwidth Memory (HBM) chips and advanced memory products powering AI data centres, cloud computing and next-generation AI models.
Investors Demand Better Capital Allocation
Despite record profitability, both companies have provided limited clarity on future shareholder return policies.
Currently, Samsung and SK Hynix target shareholder returns equivalent to around 50% of free cash flow, whereas U.S. memory chipmaker Micron Technology recently committed to returning 100% of free cash flow to shareholders.
Several institutional investors believe the South Korean companies can comfortably increase payouts while continuing aggressive investments in AI manufacturing capacity.
Portfolio managers have argued that retaining excessive cash could signal management’s lack of confidence in the long-term sustainability of AI-driven earnings.
Stock Declines Add to Investor Frustration
Investor concerns have intensified after both companies witnessed sharp corrections from their record highs despite strong financial performance.
SK Hynix shares have fallen approximately 48%, while Samsung Electronics has declined nearly 37% from their June peaks.
Following SK Hynix’s recent earnings call, several investors expressed disappointment after the company only stated that it would review additional shareholder return measures and announce its plans later this year.
Analysts say a clearer capital allocation strategy could help restore market confidence.
Balancing Investment and Shareholder Returns
Samsung and SK Hynix continue to invest heavily to meet booming AI demand.
Together, the companies have committed around 3,200 trillion won in domestic semiconductor investments, focusing on expanding memory manufacturing capacity and strengthening South Korea’s leadership in AI chips.
Industry analysts believe these investments can coexist with significantly improved shareholder returns due to the companies’ strong cash generation and long-term supply agreements with major AI firms.
Part of South Korea’s ‘Korea Discount’ Debate
The discussion also ties into the broader issue of the “Korea Discount”—the tendency of South Korean companies to trade at lower valuations than global peers due to weaker shareholder return policies.
Market experts believe improving dividends, expanding share buyback programmes and adopting more efficient capital allocation strategies could help narrow the valuation gap and attract greater international investment into South Korean equities.
Samsung has said it is finalising its shareholder return policy and plans to announce details soon, while SK Hynix has indicated it will unveil its updated capital allocation strategy before the end of the year.
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