AI Memory Super Cycle Here? JPMorgan Initiates SK Hynix ADR with Buy Rating, Target Price of $245 (32% Upside)

JPMorgan has initiated coverage on SK Hynix ADR, assigning an 'Overweight' rating with a target price of $245, implying approximately 32% upside from the current price of $185.55. JPMorgan believes the AI-driven memory upcycle could last over five years, and SK Hynix, with its leadership in High Bandwidth Memory (HBM) technology and revenue visibility from Long-Term Agreements (LTAs), possesses significant potential for valuation re-rating.

JPMorgan analyst Jay Kwon noted in the report that SK Hynix ADR currently trades at about a 20% valuation discount compared to its U.S. peer Micron Technology (MU-US), a gap that cannot be fully explained by fundamentals alone. SK Hynix matches or exceeds Micron in DRAM profitability, business scale, and HBM execution. With the ADR listing improving global investor access, liquidity, and disclosure frequency, JPMorgan expects this valuation discount to gradually narrow.

In August 2026, SK Hynix raised its shareholder return policy from 'up to 50% of cumulative Free Cash Flow (FCF)' to 'over 50%' and announced a 40 trillion KRW share buyback and cancellation program. JPMorgan estimates SK Hynix's cumulative Total Shareholder Return (TSR) yield from 2026 to 2028 will reach approximately 41.8%, providing strong support for valuation and helping reposition the company from a typical cyclical memory stock to one with long-term structural growth potential.

In terms of valuation, JPMorgan set the $245 target price for June 2027, based on 7x the average EPS of SK Hynix's Korean-listed shares (000660.KS) for fiscal years 2026–2027, plus a 20% ADR premium. This premium is benchmarked against the premium TSMC-US ADR has maintained over its Taiwan-listed shares since the AI-driven hardware rally began in 2024.

Since its July 2026 listing, SK Hynix ADR has maintained an average premium of about 32%, currently around 30%, reflecting strong global investor demand for the AI memory chipmaker. However, ADR float remains limited at about 2.5% of SK Hynix's total shares, and conversion from Korean shares to ADRs is strictly regulated. JPMorgan believes these structural factors are key reasons for the sustained high premium.

Meanwhile, SK Hynix ADR's forward P/E is about 5.8x, compared to Micron's 6.5x, meaning SK Hynix still trades at an 11% discount on a comparable basis. JPMorgan notes that Micron has historically enjoyed about a 17% valuation premium due to its U.S. investor base, passive fund inflows, and a more mature derivatives market—not solely due to cyclical profitability or shareholder returns.

Therefore, as SK Hynix ADR improves global investor participation, these structural frictions are expected to diminish, narrowing the valuation gap with U.S. peers.

JPMorgan maintains a 'higher-for-longer' view on the memory sector, expecting this upcycle to last significantly longer than past cycles. DRAM Average Selling Price (ASP) growth, which began in Q1 2024, is expected to continue beyond Q4 2028—over 20 consecutive quarters of positive ASP growth, far exceeding the historical 7–8 quarter cycle.

On the demand side, accelerating AI model token consumption is driving rapid bit demand growth for server-grade DRAM and NAND. JPMorgan forecasts that Cloud Service Providers (CSPs) will see 60% and 58% year-on-year bit demand growth for DRAM and NAND, respectively, by 2027.

On the supply side, HBM's share of DRAM wafer capacity continues to rise, expected to reach 31% by 2028. At the same time, bit output efficiency per unit of capital expenditure is declining, effectively limiting memory supply growth. As a result, supply-demand gaps may persist over the next three years.

JPMorgan forecasts SK Hynix's EPS compound annual growth rate (CAGR) from 2026 to 2028 will reach 34%. Specifically, EPS is expected to grow 510% in 2026, 27% in 2027, and 42% in 2028. The firm also projects the global memory market (DRAM + NAND) will expand from $214 billion in 2025 to $971 billion in 2026, and further to $1.44 trillion in 2027.

HBM remains central to SK Hynix's competitive advantage. The company is currently the world's largest HBM supplier, with a 2025 HBM sales market share of about 60%, and NVIDIA (NVDA-US) is its largest customer, accounting for approximately 74% of SK Hynix's HBM sales.

However, JPMorgan expects that as Samsung Electronics improves execution, SK Hynix's HBM market share will gradually decline from 2026 to a range of 40%–46%. Even so, the company is expected to maintain its global market leadership throughout the forecast period.

Regarding long-term agreements, SK Hynix has locked in over 50% of its capacity via LTAs, with contract terms favorable to suppliers, including 20%–25% prepayments of total LTA value. JPMorgan believes LTAs not only enhance revenue visibility but may also drive the memory industry toward a more structural, long-term business model.

LTA-covered CSP and AI-related demand accounts for over 70% of total bit demand and over 85% of SK Hynix's revenue. Given the significant price premium for server memory, the LTA portfolio helps SK Hynix maintain pricing power and profitability.

Beyond AI memory demand, enhanced shareholder returns are another key factor in JPMorgan's positive valuation outlook. SK Hynix officially announced on August 20, 2026, raising its shareholder return policy to over 50% of cumulative FCF and launching a 40 trillion KRW buyback and cancellation program—equivalent to 63% of its H1 2026 FCF.

JPMorgan estimates SK Hynix's TSR yields will reach 7.4%, 14.0%, and 20.4% in 2026, 2027, and 2028, respectively, with a cumulative three-year TSR of about 42%. The projected 41.8% cumulative TSR from 2026 to 2028 is expected to become a key valuation support.

JPMorgan views the FCF-based return policy as more transparent than U.S. peers' 'excess cash' approach, potentially attracting value investors. SK Hynix is expected to provide further updates on its shareholder return plan during its Q3 2026 earnings call, scheduled for late October. If the company clarifies its capital allocation policy, it could become a key catalyst for stock price appreciation and valuation re-rating.

Overall, JPMorgan's core thesis for SK Hynix includes long-term AI-driven memory demand, HBM technology leadership, LTA-driven order and earnings visibility, and a more aggressive shareholder return policy. While Samsung's rising competitiveness may reduce SK Hynix's HBM share, the company is expected to maintain market leadership. Increased global investor participation via ADRs may also gradually eliminate the valuation discount versus U.S. peers.

Given this backdrop, JPMorgan assigns SK Hynix ADR an 'Overweight' rating with a $245 target price, implying about 32% upside from the current $185.55, reflecting the view that the market has not yet fully priced in the long-term AI memory upcycle and the potential valuation re-rating from improved shareholder returns.