Despite Reporting $700 Million Daily Profits, Why Did SK Hynix's Stock Price Crash?

South Korean memory giant SK Hynix released its second-quarter financial report on Wednesday (29th), showing both revenue and profits climbing to historic highs. However, despite its impressive profitability, the company's stock price sharply declined after the earnings announcement, reflecting the capital market's stringent standards for 'winners' amid the artificial intelligence (AI) boom and deeper concerns about the industry's sustainability.

Historic Financial Performance and Profit Structure

According to financial data, SK Hynix achieved second-quarter revenue of 79.32 trillion Korean won (approximately $54.6 billion), a massive 257% increase year-on-year. Operating profit surged 557% to 60.54 trillion won (about $41.6 billion). Additionally, thanks to investment gains from the sale of Kioxia shares, net profit for the quarter reached 93.92 trillion won. This pushed the company’s cumulative revenue for the first half of 2026 past the 100 trillion won mark for the first time.

The company’s second-quarter operating margin reached 76%, significantly higher than 41% in the same period last year and up 4 percentage points from the previous quarter.

This exceptionally high profit level is primarily attributed to the expanded sales of high-value-added products, including High Bandwidth Memory (HBM), AI server-specific DRAM, and enterprise-grade solid-state drives (eSSD).

Primary Reason for Stock Plunge: Gap Between Market Expectations and Reality

Despite financial figures hitting historic highs, SK Hynix's stock price plunged over 9% on the day of the earnings release in the South Korean market, having already dropped nearly 15% the previous day, significantly reducing its market capitalization from June's peak.

The main reason for the intense market reaction is that the performance data failed to meet analysts’ sky-high expectations. Analysts had initially forecasted revenue and operating profit to reach 84.17 trillion won and 64.31 trillion won, respectively, but the actual results fell slightly short.

Josh Gilbert, Chief Analyst at eToro Asia-Pacific, pointed out that for a core supplier to NVIDIA, the market no longer focuses solely on overall figures; the emphasis is now on whether profit margins and forward guidance can support the current valuation.

Additionally, DS Investment & Securities analyst Lee Su-rim analyzed that SK Hynix may have implemented smaller price increases on long-term customer contracts compared to its rival Samsung Electronics, which partly explains the gap between performance and market expectations. The market is also anxious about whether 'hyperscale cloud service providers' like Microsoft and Amazon can sustain massive AI capital expenditures.

Management Strategy: Long-Term Agreements and Technological Leadership

In response to market concerns about demand sustainability, SK Hynix has adopted a 'long-term binding' strategy. The company has signed long-term supply agreements (LTAs) with approximately 10 core strategic customers, which include deposit mechanisms to ensure mid-to-long-term revenue certainty.

Park Sung-hwan, SK Hynix's Head of Investor Relations, stated that cloud service providers are not reducing their AI investments but are shifting toward infrastructure with higher utilization rates, as AI capability has become a key competitive advantage. SK Hynix's Corporate Center President Song Hyun-jong emphasized that the AI race among major customers will keep infrastructure investment at a stable level over the next two years.

On the technology front, SK Hynix began mass-producing and shipping HBM4 in the second quarter, claiming its yield and quality are approaching mature HBM3E levels. Kim Ki-tae, Head of HBM Sales and Marketing, emphasized that HBM4 has differentiated advantages in power efficiency and cost competitiveness, while more advanced HBM4E samples have already been delivered in the first half, targeting mass production by 2027.

Capital Expenditure Discipline and Expansion Plans

To address structural shortages, SK Hynix plans to increase its 2026 capital expenditure (CapEx) to over 40 trillion won, focusing on ramping up HBM4 production capacity and purchasing key equipment.

Despite the large scale of investment, the company emphasized adherence to 'capital expenditure discipline,' executing investments in phases based on actual customer demand to maintain financial health.

In the NAND flash memory sector, the company is accelerating its shift to advanced processes, with 321-layer products now accounting for the largest share of output. The company expects its domestic production capacity in South Korea to increase to 50% by the end of the year, strengthening its position in the high-performance eSSD market.

Outlook for the Future

Although short-term stock prices are affected by macroeconomic conditions and market sentiment, CEO Kwon Oh-joon expects memory shortages could persist beyond 2030. The company emphasized that its cash reserves have significantly increased to 88 trillion won, greatly enhancing financial flexibility, which will be sufficient to withstand cyclical industry fluctuations and continue supporting cutting-edge R&D.

Meritz Securities analyst Kim Sunwoo believes that as cash balances approach target levels, investors will increasingly focus on how the company balances sustained investment with shareholder returns.