SK Hynix’s Revenue More Than Doubles as AI Demand Powers On

(Bloomberg) — SK Hynix Inc.’s quarterly revenue more than doubled, stoking hopes that a global boom in spending on AI hardware will persist in 2024.

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The company, a key partner to Nvidia Corp. in supplying chips to train artificial intelligence models, reported sales of 16.4 trillion won ($11.9 billion) versus the 16.1 trillion won projected. Operating profit was 5.47 trillion won, compared with expectations for 5.24 trillion won.

SK Hynix’s report may assuage growing concerns that AI spending will begin to decelerate as US curbs on supplying China take hold, while the frenetic pace of datacenter investments slows. 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 remains one of the main beneficiaries of a race to supply components essential to creating ChatGPT-like generative AI services.

It’s well ahead of traditional rivals Samsung Electronics Co. and Micron Technology Inc. in designing and supplying the high-bandwidth memory that powers Nvidia’s AI accelerators. In April, the Korean company said it expected a full recovery in the memory market after posting its fastest pace of revenue growth since 2010, and lifted capital spending plans. It revealed in May that its capacity to make high-bandwidth memory chips was almost fully booked through 2025, reflecting a widening lead over Samsung.

That’s helped power a 47% gain in SK Hynix since the start of the year, a rally mirrored by many of the AI sector’s emerging new leaders. But that global stock boom wobbled last week after investors reassessed 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.

“We are not calling for the ‘end of the cycle’ – but with all the focus on shortages and talk of a new AI paradigm, it is important not to lose sight of the normal, cyclical nature of the semiconductor market,” Morgan Stanley analysts including Shawn Kim and Charlie Chan wrote in a separate report.

What Bloomberg Intelligence Says

SK Hynix’s 2Q operating-profit margin could have hit 37-40% due to improving average selling prices (ASP) for DRAM and NAND chips, as Micron recently achieved a 20% ASP rise. SK Hynix’s dominant market share in high-bandwidth memory (HBM) chips might have boosted operating margin. SK Hynix may expect bit-shipments of DRAM and NAND to grow sequentially in 3Q due to a seasonal demand increase. As the firm is expanding production capacity of HBM, its sales could continue to grow in 2H.

– Masahiro Wakasugi, analyst

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For the long run, SK Hynix is earmarking 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.

The company said it’s increasing the supply of its leading-edge HBM3E chips and in talks with a number of customers on long-term contracts for such semiconductors.