BOK backs AI chip super cycle, 25bp rate hike may follow

The Bank of Korea backed the AI-driven chip super cycle, saying supply constraints will persist as some question whether demand has peaked.

The Bank of Korea said the global semiconductor market remains in supply deficit, with AI-driven demand outpacing capacity expansion, in a report that rebutted investor concerns the chip cycle has peaked.

"Although semiconductor demand has surged due to investment in AI infrastructure, the pace of supply expansion has been slower," the Bank of Korea said in its report, adding that the semiconductor cycle has yet to show signs of slowing. The current upcycle is different from past booms because it is driven by competitive corporate investment responding to structural changes in the technology ecosystem, the central bank said.

The report's bullish stance comes as the BOK prepares for its rate-setting meeting Thursday, with Governor Shin Hyun Song having repeatedly flagged the need for tighter policy. Bank of America analysts expect a 25-basis-point increase, starting a gradual tightening cycle, as the Korean won recently touched a 17-year low against the dollar after stronger verbal intervention by authorities failed to stem the decline.

The central bank's endorsement of the super-cycle thesis could support investor confidence in South Korean semiconductor heavyweights such as Samsung Electronics and SK Hynix, which together control more than 70 percent of the global high-bandwidth memory market. If the BOK follows through with a rate increase, it would mark a policy shift aimed at stabilizing the won and containing inflation, even as the export-driven economy benefits from the chip boom.

The BOK's assessment challenges a growing narrative among some investors that semiconductor orders may have peaked after an extended run-up. The report argued that the current cycle is structurally different from previous ones, driven not by cyclical inventory restocking but by a fundamental shift as AI adoption spreads across industries.

Rate Decision Adds Another Variable

The BOK's rate-setting meeting Thursday adds a second focal point for markets. Governor Shin has flagged a hawkish tilt in recent weeks, citing the need to address currency weakness and inflation risks. The won's slide to a 17-year low has amplified import costs, putting pressure on the central bank to act. Money markets are pricing a high probability of a 25-bp hike, according to LSEG data, which would bring the base rate higher as the BOK starts a gradual tightening cycle, BofA analysts Benson Wu and Ting Him Ho said.

AI Demand Shows No Signs of Cooling

The BOK's findings align with broader industry signals that AI-related chip demand remains strong. Enterprise spending on AI infrastructure continues to grow, with executives describing demand as "almost unlimited" even as companies focus on extracting value from existing investments, according to recent reports. Nvidia's forward price-to-earnings ratio has fallen, leaving room for further gains if earnings continue to outpace the stock price.

This article is for informational purposes only and does not constitute investment advice.