SK Hynix Posts 557% Profit Surge but Falls Short of Expectations, AI Chip Rally Faces New Scrutiny

Memory giant SK Hynix announced on Wednesday (29th) a 557% year-on-year increase in second-quarter operating profit to 60.54 trillion Korean won (545.5 billion USD), but its performance fell short of investor expectations, deepening market concerns about whether the artificial intelligence (AI) boom driving the semiconductor industry is beginning to cool.

Q2 (ended June) Key Financials:

- Revenue: 79.32 trillion KRW (545.5 billion USD) vs. 84 trillion KRW expected - Operating Profit: 60.54 trillion KRW vs. 64 trillion KRW expected

SK Hynix's Q2 revenue surged 257% year-on-year to 79.32 trillion KRW, while operating profit skyrocketed 557% to 60.54 trillion KRW.

Compared to Q1, revenue rose 51% quarter-on-quarter, and operating profit increased 61%.

As a key supplier to NVIDIA (NVDA-US), SK Hynix stated that robust market demand continues due to expanding AI infrastructure investments. High-performance products for AI servers have driven prices to record highs.

The company said it has signed multi-year supply agreements with approximately 10 customers. Boosted by one-time investment gains, net profit surged 1,242% year-on-year, exceeding market forecasts.

SK Hynix's cumulative revenue for the first half of the year surpassed 100 trillion KRW for the first time, setting a historical record and underscoring the continued strength of AI demand.

SK Hynix has risen to become the leader in the AI memory market with its high-bandwidth memory (HBM), surpassing Samsung Electronics. However, as market skepticism grows over whether AI investments can sustain current high valuations, its market capitalization has lost over 500 billion USD since June.

Additionally, rising corporate debt among tech firms has heightened investor concerns. Increased leveraged transactions, including those by SK Hynix, have further amplified volatility in South Korea's stock market.

Josh Gilbert, Chief Analyst at eToro for Asia-Pacific and the Middle East, said: "When you're the primary HBM supplier supporting NVIDIA's AI chips, the AI boom directly reflects in your earnings."

He noted that the market is focused not just on financial figures, but more importantly on whether gross margins and future guidance can justify recent stock price performance.

Investors worry that soaring chip prices could drag down the broader economy, push up electronics prices, and force manufacturers of end products like PCs and smartphones to cut production. Brokerages such as Mirae Asset Securities have recently downgraded SK Hynix's Q2 profit forecast, citing a slowdown in average selling price growth for chips.

However, chipmakers counter these concerns, arguing that supply will remain tight in the long term. With cloud service providers continuing to increase memory procurement, both shipment volumes and profitability are expected to rise.

Earlier this month, SK Hynix CEO Kwak Noh-Jung stated in an interview that the shortage of memory chips impacting computer, automotive, and consumer electronics manufacturers could persist beyond 2030.