"It Can't Get Any Better" – SK Hynix Posts Soaring Profits but Shares Plunge, Analysts: Peak May Have Been Reached

South Korean semiconductor giant SK Hynix announced its second-quarter financial results on Wednesday (29th), reporting strong quarterly profits. However, its stock price subsequently fell significantly, triggering intense market discussion on whether the AI sector has already reached its valuation peak.

Second-Quarter Financial Performance and Market Reaction According to financial data, SK Hynix achieved Q2 revenue of 79.32 trillion KRW, a 51% increase quarter-on-quarter. Operating profit reached 60.54 trillion KRW, up 61% from the previous quarter. Despite the impressive profit growth, both revenue and profit fell approximately 6% and 7% short of market consensus, respectively.

In terms of product pricing, average selling prices (ASP) for DRAM and NAND rose sharply by 30% and 56%, respectively. However, the higher product mix of HBM3E led to a flat average selling price, while delayed shipments of HBM4 to NVIDIA dampened profit performance, making it slightly weaker than expected.

David Riedel, an analyst at Riedel Research, commented: "This really can't get any better."

Riedel stated that a sixfold profit increase may represent a temporary peak, and the recent stock decline reflects the market squeezing out overheated AI premiums and reverting to more reasonable valuations. He further noted that the stock had risen too sharply over the past few months, accumulating excessive sentiment-driven premiums, and that the current correction is necessary for sustainable future performance.

Nonetheless, Riedel affirmed SK Hynix's long-term fundamentals, noting that even the traditionally undervalued 'boring' memory business holds value. He highlighted that the company's long-term supply agreements (LTAs) with customers effectively mitigate price volatility and enhance revenue predictability.

In contrast to Riedel's cautious stance, CLSA (Credit Lyonnais Securities Asia) maintained its "Outperform" (Outperform the market) rating for SK Hynix. CLSA analyzed that despite market concerns over the sustainability of AI capital expenditures and the rise of Chinese suppliers—causing the stock to retreat about 50% from its peak—the current price-to-book ratio (P/B ratio) already reflects multiple negative factors.

CLSA forecasts that memory supply will remain tight until 2027, driven by the increasing complexity of advanced process nodes, the lengthy ramp-up time for new fabrication plants, and strong data center demand. Additionally, as AI applications expand into areas such as search and programming, demand for high-end products like HBM and high-capacity eSSDs is expected to grow steadily.

Faced with abundant cash flow, SK Hynix's management has demonstrated a strategy prioritizing profit margin protection. The company explicitly stated it will meaningfully expand shareholder returns.

Riedel pointed out that the company is not currently considering large-scale capacity expansion, instead preferring to maintain a slightly tight market supply to safeguard pricing power and profitability. He believes that, given its strong cash position and significant stock appreciation, returning capital to shareholders through buybacks or dividends is a more optimal strategy than blind expansion.