(Bloomberg) -- This year’s 26% AI-driven rally in shares of South Korea’s SK Hynix Inc. faces threats as political issues and valuations push local investors toward domestic-focused companies.

Korean retail traders are on course for their biggest monthly withdrawal from the memory chipmaker in at least a decade. With the stock on course for its best January since 2009, market observers say the temptation to take some money off the table is high.

AI leader Nvidia Corp. lost steam this month on concerns over competition and slower growth. Korean investors, meanwhile, have been rotating into non-tech beneficiaries of President Donald Trump’s policies as well as smaller local stocks expected to enact corporate reforms.

“The market is paying more attention to the issues that could see swift changes after Trump takes office,” such as in the energy sector, said An Hyungjin, chief executive officer at Seoul-based Billionfold Asset Management Inc. “I have concerns that if Nvidia’s rally stalls, whether SK Hynix can gain further.”

Results due Thursday morning from SK Hynix are expected to show record quarterly net income of 5.9 trillion won ($4 billion). That comes as the firm is benefiting from its position as a leading supplier of high bandwidth memory (HBM) chips to work alongside Nvidia’s AI processors.

SK Hynix’s share price has more than doubled in two years on the AI excitement, though that lags far behind the sevenfold gain in Nvidia. The broader chip sector, including memory, has been restrained by lingering concerns over sluggish demand for autos and electronics.

Korean investors may be taking profits on SK Hynix after its big gains, “as memory prices are still expected to be trending downwards in the first half of 2025,” said Gary Tan, a portfolio manager at Allspring Global Investments. At the same time, foreign investors that have driven the stock higher “could be viewing memory as a laggard in the AI space.”

SK Hynix’s rally has made the stock look pricey. Its trading at a price-to-book ratio to 2.8 times, above its three year average of 1.6 times. Beyond valuations, investors are being lured away from the tech sector and into sectors including shipbuilding and nuclear power on expectations for boosts from Trump’s policies.

At home, some investors expect the opposition party’s corporate reform agenda to gain traction following the impeachment of the President Yoon Suk Yeol over his botched attempt to impose martial law. Smaller, domestically focused companies with room for improvement on shareholder returns are seen as particular beneficiaries.

“There are many companies that could outperform with the commercial code revision,” said Marcello Seongsoo Ahn, a portfolio manager at Quad Investment Management Co. “SK Hynix shares may rise but their gains will be outpaced by those companies.”

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