SK Hynix shares tumble by most in 20 months after AI selloff
(Bloomberg) — Shares of SK Hynix Inc. (000660.KS) slid by the most in 20 months after a rout in tech stocks, overshadowing strong financial results for the supplier to Nvidia Corp. in the June quarter.
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The company, which produces chips that help train artificial intelligence models, reported sales that more than doubled to 16.4 trillion won ($11.9 billion), ahead of analyst estimates. Operating profit in the three months to June also beat expectations, coming to 5.47 trillion won with an operating margin of 33%.
But SK Hynix’s stock fell as much as 8.9% Thursday in Seoul, the biggest intraday decline since Nov. 2022. That followed a broad sell off in tech stocks in the US — including a 6.8% drop for Nvidia — as investors grow skittish about the inflated valuations for AI-related companies. Samsung Electronics Co. (005930.KS), which is struggling to break into the lucrative high-end memory market, fell 2.3%.
Concerns are growing that AI and datacenter spending will decelerate from its frenetic pace unless companies like Microsoft Corp. and Alphabet Inc. can generate significant revenue from their enormous investments. This week, Morgan Stanley cut AI chip-sector stocks including SK Hynix and Taiwan Semiconductor Manufacturing Co. from its focus lists, warning that it may be time to take a breather.
SK Hynix has been one of the main beneficiaries of a race to supply components essential to creating ChatGPT-like generative AI services. The company will “closely analyze customer demand and profitability” to make sure its capital spending is within operating cash flow, the company said in a statement. It had said in May that its capacity to make high-bandwidth memory chips was almost fully booked through 2025.
HBM chips, which are paired with Nvidia’s accelerators, were a key growth driver for SK Hynix in the quarter. Revenue for its high-bandwidth memory surged more than 250%.
“It’s all about HBMs and enterprise solid-state drives,” said Greg Roh, an analyst with Hyundai Motor Securities Co. Both SK Hynix and Samsung are getting boosts from strong demand for high-end solid-state drives, used in large companies’ datacenters, he said.
That helped power a 47% gain in SK Hynix’s stock from the start of the year to Wednesday’s close, a rally mirrored by many of the AI sector’s emerging new leaders. But that global stock boom remains in peril as investors reassess the potential for further gains amid looming central bank policy shifts and the US presidential election. Some analysts warned that the hype over untested AI applications was driving outsized market gains with AI technology yet to reach its full potential.
There are concerns “that cloud hyperscalers’ capex growth this year may not see further upside while the revenue growth from generative AI applications is trending below expectations,” Sanjeev Rana, an analyst at CLSA Securities Korea Co. said.
SK Hynix said its own capital expenditures this year would likely top earlier plans to keep up with a boom in spending on AI hardware. The company plans to mass produce its next-generation 12-layer HBM3E chips this quarter and start supplying an unidentified customer in the fourth quarter.
Such a move is likely to widen its lead over Samsung and Micron Technology Inc. in designing and supplying the high-end memory that powers Nvidia’s (NVDA) AI accelerators. Samsung is still trying to get its HBM3E products certified by Nvidia.
SK Hynix is accelerating production of top-of-the-line HBM3E products to secure HBM sales growth of more than 300%, said Kim Kyu Hyun, the company’s DRAM marketing head. Such products are expected to make up about half the volume of the company’s HBM chips this year.
“Next year, the HBM3E 12-high product will be our flagship product and we will also prepare HBM4 to respond to customer demand,” Kim said during a conference call, adding that SK Hynix’s supply of 12-layer HBM3E is expected to exceed that of 8-layer HBM3E in the first half of next year.
What Bloomberg Intelligence Says
SK Hynix’s 2% revenue beat on DRAM (likely HBM) strength and improving pricing trends bode well for Micron and suggests the company’s in-line fiscal 4Q revenue guidance may be conservative. Growing high-bandwidth memory (HBM) demand was complimented by strengthening solid state drive sales as AI workloads proliferate. Traditional markets experienced seasonal trends, which was likely what drove a sequential NAND bit decline.
- Jake Silverman, analyst
SK Hynix has earmarked some $15 billion in South Korea to meet surging demand for high-end chips, on top of a plan to spend $3.9 billion on an advanced packaging plant and research center for artificial intelligence products in Indiana.
—With assistance from Youkyung Lee.
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