SK Hynix Inc. experienced its most significant decline in nearly 20 months as tech stock routs overshadowed its impressive financial performance for the June quarter. Despite reporting robust earnings, the semiconductor giant’s shares plummeted by up to 7.8% in Seoul on Thursday, marking the steepest intraday drop since November 2022.
The company, a key supplier of chips crucial for training artificial intelligence models, saw its sales surge to 16.4 trillion won ($11.9 billion), more than doubling year-on-year and exceeding analyst projections. Additionally, SK Hynix’s operating profit reached 5.47 trillion won with an operating margin of 33%, also surpassing expectations.
However, the strong financial results were overshadowed by a broad selloff in tech stocks, including a 6.8% drop in Nvidia shares. This market downturn has intensified investor concerns about inflated valuations in the AI sector. Samsung Electronics Co., struggling to penetrate the high-end memory market, also saw its stock fall by 2.2%.
Worries are mounting that growth in AI and datacenter spending might slow unless major tech firms like Microsoft Corp. and Alphabet Inc. can significantly boost revenues from their extensive investments. Reflecting these concerns, Morgan Stanley has removed AI chip-sector stocks, including SK Hynix and Taiwan Semiconductor Manufacturing Co., from its focus lists, suggesting it might be prudent to pause.
As a major player in the AI component supply race, SK Hynix benefits from the burgeoning demand for high-bandwidth memory (HBM) chips used in AI applications like ChatGPT. The company indicated it would “closely analyze customer demand and profitability” to align its capital expenditure with operating cash flow. Earlier this year, SK Hynix stated that its HBM production capacity was nearly fully booked through 2025.
HBM chips, integral to Nvidia’s AI accelerators, were a significant growth driver for SK Hynix in the last quarter, with revenue from these chips increasing by over 250%. Despite this, SK Hynix’s stock has been volatile, with a 47% gain from the start of the year up to Wednesday’s close. This gain mirrors the broader rally in the AI sector but remains vulnerable to market shifts and upcoming central bank policies, as well as the US presidential election.
Analysts have expressed concerns about the sustainability of the AI sector’s rapid growth. Sanjeev Rana of CLSA Securities Korea Co. highlighted worries that capital expenditure by cloud hyperscalers might not see further increases, and that revenue growth from generative AI applications is falling short of expectations.
In response to the booming AI hardware market, SK Hynix anticipates its capital expenditures for the year will exceed earlier projections. The company plans to commence mass production of its next-generation 12-layer HBM3E chips this quarter and will begin supplying them to a yet-to-be-named customer in the fourth quarter.
This strategic move aims to strengthen its competitive edge over rivals Samsung and Micron Technology Inc. in the high-end memory segment, with HBM3E products projected to account for approximately half of its HBM chip output this year.
Bloomberg Intelligence notes that SK Hynix’s revenue beat, driven by strong DRAM and improving pricing trends, bodes well for Micron and suggests the company’s fiscal Q4 revenue guidance may be conservative. The growing demand for HBM and strengthening solid-state drive sales, alongside seasonal trends affecting NAND bit sales, reflect the broader impact of AI workloads.
