Korean Chipmakers Power EWY to 90% Gain While Trading at a Bargain Versus S&P 500

The iShares MSCI South Korea ETF (EWY) has emerged as a surprise outperformer in 2025, delivering gains that put most mainstream U.S. equity benchmarks to shame. With a 92% jump last year and another 19% gain already registered through late January 2026, this Asia-focused fund has captured investor attention—particularly because it continues trading at valuations roughly half those of the S&P 500. The catalyst behind South Korea ETF’s remarkable run? Memory chip manufacturers Samsung and SK Hynix have led the charge, accounting for nearly half the fund’s holdings and benefiting from an unprecedented surge in demand driven by artificial intelligence infrastructure buildout globally.

AI Infrastructure Spending Reignites Demand for Memory Chips

The renaissance of South Korean stocks reflects more than just a cyclical upturn in semiconductor prices. The AI boom has created voracious demand for memory capacity, sending both SK Hynix and Samsung into breakout mode. Both companies supply the high-bandwidth memory and DRAM that power AI servers and data centers, positioning them at the epicenter of the global AI infrastructure build-out.

It’s worth noting that U.S.-based Micron Technology has similarly benefited, with triple-digit gains last year, underscoring how the entire memory chip ecosystem is riding the AI wave. Yet South Korea holds a unique advantage: the country is home to two of the world’s three largest memory chipmakers, giving concentrated exposure to this secular growth story.

Beyond chip demand, additional tailwinds have supported the rally. The Korean won has remained relatively weak against the dollar, which benefits exporters. President Lee Jae Myung’s administration has introduced shareholder-friendly measures including enhanced corporate governance standards and a reduction in the top dividend tax rate from 50% to 30%, with potential inheritance tax reforms in the pipeline—all designed to lift valuations and attract foreign capital.

How Deep Are the Valuations Really?

Perhaps the most compelling aspect of EWY’s story isn’t the performance itself, but the price paid for that performance. As of late January, the South Korea-focused fund was trading at a price-to-earnings multiple of 17, compared to 28 for the broad S&P 500. When measured on a forward earnings basis, the Korean market’s valuation compresses even further to roughly 10 times earnings—roughly a third of the U.S. index.

This valuation gap creates a curious paradox: EWY is delivering superior returns while remaining significantly cheaper, suggesting either the Korean market remains mispriced or the U.S. market has gotten stretched. For investors burned by the excessive valuations in U.S. tech stocks, this reality offers an attractive alternative.

What’s Driving the Fund: Beyond the Memory Giants

While Samsung (representing 26.8% of holdings) and SK Hynix (18.3%) dominate the portfolio, the fund contains a range of compelling opportunities. Hyundai Motor has emerged as a serious electric vehicle contender and holds an 80% stake in Boston Dynamics, the robotics company that some analysts believe rivals or exceeds Tesla in humanoid robotics development—a potential game-changer for the decade ahead.

Other meaningful positions include Kia, another EV-focused automaker with growing market share; Hanwha Aerospace, a critical supplier to aerospace giants like GE and Rolls-Royce; and Naver, South Korea’s dominant online platform often compared to a combination of Google’s search, maps, and services offerings. This diversification across chipmakers, automakers, and platform operators provides multiple growth vectors beyond the memory chip cycle.

The Volatility Tradeoff and 2026 Outlook

Investors should enter EWY’s doors with clear eyes: the memory chip sector has a reputation for volatility, and cyclical downturns can be sharp and swift. However, as long as AI infrastructure spending continues its current trajectory—and few analysts expect a pullback—memory demand should remain robust. The ETF’s exposure positions investors to capture upside from this secular trend.

Through the first month of 2026, EWY has already posted a nearly 20% gain, suggesting market conviction remains strong. The real question isn’t whether the fund will continue rising, but whether the valuations will expand further or stabilize, and how long the current memory chip cycle will persist.

A Window for International Diversification

The case for considering EWY extends beyond South Korea itself. The iShares MSCI World ETF, which maintains broader geographic and sectoral diversification, also outpaced the S&P 500 last year with a 21% gain. This serves as a timely reminder that quality opportunities exist well beyond U.S. shores, and that geographic diversification can enhance long-term returns, particularly when international valuations remain attractive.

For portfolio managers questioning whether their S&P 500 holdings have become overextended—trading at valuations near historical peaks—an allocation to South Korean equities via EWY offers exposure to structural AI trends and geopolitical diversification at a valuation that remains genuinely compelling.