Nvidia Supplier SK Hynix's Stock Surge: High-Bandwidth Memory Chips and AI Potential

Impressive Growth and Analyst Optimism

Shares in South Korea’s SK Hynix Inc., a key supplier to Nvidia Corp., have surged more than 100% over the past year, with Wall Street predicting further gains. No fewer than 19 analysts have upgraded their forecasts for the firm, the largest supplier of high-bandwidth memory (HBM) chips to Nvidia’s artificial intelligence (AI) products. This optimism is driven by the sky-high potential for AI and the prospect of a positive surprise in this month’s earnings.

Goldman Sachs Group Inc. upgraded its stock-price target to 290,000 won ($210) on Tuesday, implying a potential gain of 25% from that day’s close. Citigroup Inc. raised its prediction to 350,000 won last week, about 50% higher than the current share price.

“The current share valuation isn’t fully reflecting the potential of high-bandwidth memory chips,” said Roh Jongwon, chief investment officer at Infinity Global Asset Management Co. in Seoul. “The market is treating HBM’s valuation the same as traditional memory chips, but HBM is almost twice as profitable.”

Strong Financial Performance and Market Dynamics

SK Hynix is expected to report a second-quarter operating profit of 5 trillion won, the highest in six years, when it announces earnings on July 26, according to the median of estimates compiled by Bloomberg. This would mark a significant turnaround from last year’s losses, driven by a recovery in memory-chip prices fueled by demand for high-end devices for AI applications.

SK Hynix shares rose 2.6% on Friday after Samsung Electronics Co. posted its fastest pace of sales and profit growth in years. Citi arrived at its 350,000 won price target — the most bullish among analysts’ forecasts compiled by Bloomberg — by considering previous peaks in SK Hynix stock and applying a discount, according to Peter Lee, head of global tech and communication at Citigroup Global Markets Korea Securities Ltd.

Lee noted that demand for HBM may not be fully recognized yet, as the world is still unfamiliar with the potential of AI, similar to the early days of smartphones. “Because this is a market that didn’t exist in the past, we have never seen how far it can go,” he said.

Valuation Concerns and Future Prospects

Despite the optimism, some investors are cautious as multiples head higher. SK Hynix is now trading at 2.9 times book value, its most expensive valuation since at least 2011, according to Bloomberg data.

“We have entered uncharted territory in terms of valuation,” said Yoon Joonwon, a fund manager at DS Asset Management Co. in Seoul. “I think its earnings will beat market expectations this year and next year, but the markets are still uncertain about that.”

Investor jitters are evident. SK Hynix shares dropped as much as 4.7% on Thursday following local media reports that Samsung would soon enter talks with Nvidia to supply the US company with its own version of HBM chips. Samsung later denied these reports.

There are also concerns about a potential oversupply of memory chips after SK Hynix announced a $75 billion investment plan through 2028. Increasing output may depress chip prices and raise the specter of a downturn in the memory industry.

“Because this is an untrodden path, volatility is inevitable,” said Citigroup’s Lee.

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