SK Hynix Tumbles by Most in 20 Months After AI Selloff

(Bloomberg) — Shares of SK Hynix Inc. slid by the most in 20 months after a rout in tech stocks, overshadowing strong financial results for the supplier to Nvidia Corp. in the June quarter.

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The company, which produces chips that help train artificial intelligence models, reported sales that more than doubled to 16.4 trillion won ($11.9 billion), ahead of analyst estimates. Operating profit in the three months to June also beat expectations, coming to 5.47 trillion won with an operating margin of 33%.

But SK Hynix’s stock fell as much as 7.8% Thursday in Seoul, the biggest intraday decline since Nov. 2022. That followed a broad sell off in tech stocks in the US — including a 6.8% drop for Nvidia — as investors grow skittish about the inflated valuations for AI-related companies. Samsung Electronics Co., which is struggling to break into the lucrative high-end memory market, fell 2.2%.

Concerns are growing that AI and datacenter spending will decelerate from its frenetic pace unless companies like Microsoft Corp. and Alphabet Inc. can generate significant revenue from their enormous investments. This week, Morgan Stanley cut AI chip-sector stocks including SK Hynix and Taiwan Semiconductor Manufacturing Co. from its focus lists, warning that it may be time to take a breather.

SK Hynix has been one of the main beneficiaries of a race to supply components essential to creating ChatGPT-like generative AI services. The company will “closely analyze customer demand and profitability” to make sure its capital spending is within operating cash flow, the company said in a statement. It had said in May that its capacity to make high-bandwidth memory chips was almost fully booked through 2025.

HBM chips, which are paired with Nvidia’s accelerators, were a key growth driver for SK Hynix in the quarter. Revenue for its high-bandwidth memory surged more than 250%.

“It’s all about HBMs and enterprise solid-state drives,” said Greg Roh, an analyst with Hyundai Motor Securities Co.

That helped power a 47% gain in SK Hynix’s stock from the start of the year to Wednesday’s close, a rally mirrored by many of the AI sector’s emerging new leaders. But that global stock boom remains in peril as investors reassess the potential for further gains amid looming central bank policy shifts and the US presidential election. Some analysts warned that the hype over untested AI applications was driving outsized market gains with AI technology yet to reach its full potential.

There are concerns “that cloud hyperscalers capex growth this year may not see further upside while the revenue growth from generative AI applications is trending below expectations,” Sanjeev Rana, an analyst at CLSA Securities Korea Co. said.

SK Hynix said its own capital expenditures this year would likely top earlier plans to keep up with a boom in spending on AI hardware. The company plans to mass produce its next-generation 12-layer HBM3E chips this quarter and start supplying an unidentified customer in the fourth quarter.

That suggests it can widen its lead over rivals Samsung and Micron Technology Inc. in designing and supplying the high-end memory that powers Nvidia’s AI accelerators. Top-of-the-line HBM3E products would make up about half the volume of all its HBM chips this year, it said.

What Bloomberg Intelligence Says

SK Hynix’s 2% revenue beat on DRAM (likely HBM) strength and improving pricing trends bode well for Micron and suggests the company’s in-line fiscal 4Q revenue guidance may be conservative. Growing high-bandwidth memory (HBM) demand was complimented by strengthening solid state drive sales as AI workloads proliferate. Traditional markets experienced seasonal trends, which was likely what drove a sequential NAND bit decline.

– Jake Silverman, analyst

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SK Hynix has earmarked some $15 billion in South Korea to meet surging demand for high-end chips, on top of a plan to spend $3.9 billion on an advanced packaging plant and research center for artificial intelligence products in Indiana.

(Updates with share reaction and analyst commentary)