SK Hynix breaks records thanks to AI, but investors are disappointed: stock plummeted by about 15%
The South Korean memory chip manufacturer reported a massive jump in revenue and operating profit, driven by demand for advanced AI chips. Despite this, results fell short of analyst forecasts, triggering a sharp decline in the company's stock.
South Korean memory chip manufacturer SK Hynix reported on Tuesday evening what it defined as the best quarter in its history, but it was not enough to impress investors. Despite a jump of hundreds of percent in revenue and profits, the results were lower than analysts' expectations, and the stock plummeted by about 15%. The decline came against the backdrop of a broad wave of sell-offs in chip stocks worldwide, as investors begin to question whether the massive pace of investment in artificial intelligence infrastructure can be sustained over time.
The company reported revenue of 79.3 trillion won (about 54.6 billion dollars), an increase of 257% compared to the same period last year. Operating profit totaled 60.5 trillion won (about 41.6 billion dollars), a jump of 557% year-over-year. Net profit surged by 1,242% to reach 94 trillion won (about 64 billion dollars), partly due to the sale of its stake in the flash memory company Kioxia. This marks the best quarter in the company's history, and for the first time, revenue for the first half of the year crossed the 100 trillion won mark (about 69 billion dollars).
However, the results were lower than market forecasts. Analysts expected revenue of about 84 trillion won (about 57.8 billion dollars) and an operating profit of about 64 trillion won (about 44.1 billion dollars). In a market where SK Hynix has become one of the biggest beneficiaries of the artificial intelligence revolution, even growth of hundreds of percent is not enough when expectations are even higher.
The decline in the stock is particularly prominent as it comes less than three weeks after the company completed an ADR (American Depositary Receipts) offering on Nasdaq. As part of the offering, the company raised 26.5 billion dollars, in one of the largest stock offerings ever carried out by a foreign company in the USA.
The fear: will the AI boom lead to an oversupply?
SK Hynix is one of Nvidia's key suppliers of HBM (High Bandwidth Memory) chips, which are used for training and running artificial intelligence models. According to the company, massive investments by technology giants in data centers and AI infrastructure continue to drive demand for memory chips, and it estimates that this trend will continue in the second half of the year. The company explains that AI services are already starting to generate revenue for large cloud providers, allowing them to continue expanding investments in computing infrastructure.
To meet demand, the company is expanding its product supply. During the last quarter, it began mass production of HBM4 chips, and in the first half of the year, it completed sample shipments of the HBM4E version to customers. Simultaneously, it is accelerating the transition to 321-layer production technology for NAND chips, which is expected to account for about half of its production capacity in that field by year-end. The company also announced it will invest about 40-50 trillion won (about 28-34 billion dollars) this year in expanding production and developing next-generation memory chips.
Despite the company's optimism, investors fear that the huge wave of investments by chip manufacturers could lead to an oversupply within a few years—a scenario well known to the memory industry, which is characterized by sharp cycles of shortages, production surpluses, and price drops. The strengthening of Chinese chip manufacturers and continued aggressive investments by companies like Samsung and Micron Technology also add to concerns about increasing competition.
SK Hynix rejects these assessments. The company claims that demand for advanced memory chips continues to rise, while prices for DRAM and NAND chips continued to climb in the last quarter. According to the company, long-term supply contracts with key customers provide greater stability compared to the business cycles that characterized the industry in the past, and the shortage of memory chips for AI is expected to last for years.
