Top AI memory maker SK Hynix may add to 95% rally

INVESTORS are bullish on the chance for more gains in shares of Nvidia Corp’s top memory supplier SK Hynix Inc, which remain cheap even after a huge run-up.

The South Korean company’s stock has surged 95% since the start of last year, far outpacing memory rivals Samsung Electronics Co and Micron Technology Inc. Yet it’s still trading at just 11 times forward earnings estimates, compared to 15 for Samsung, 30 for Micron and 27 times for the Philadelphia Semiconductor Index.

The key is that SK Hynix was able to get a jump on the competition in the market for high-bandwidth memory (HBM), which can supply the large volumes of data at the high speed required by artificial intelligence (AI). That’s helped it garner greater investor attention after years of playing No 2 to Samsung.

“It’s too risky not to own SK Hynix in the portfolio,” said DS Asset Management Co fund manager Yoon Joonwon. “As global big tech firms are seeing further gains, investors are expecting more upside in SK Hynix too.”

HBM features a stack of dynamic random-access memory (DRAM) optimised to work alongside accelerators, processors used extensively in the training of AI. Not subject to the cyclical demand and pricing of commoditised traditional memory, HBM chips are much more lucrative.

High-priced AI products helped SK Hynix report an operating profit for the three months ended December, after fourstraight quarterly losses.

The company is looking to maintain its lead over Samsung and Micron in AI. To that end, SK Hynix has reportedly tied up with top foundry Taiwan Semiconductor Manufacturing Co (TSMC) to develop its next generation HBM chip. SK Hynix declined to comment on the report, while TSMC didn’t respond to requests from Bloomberg.

That news is “triggering market speculation about SK Hynix being a clear winner in the HBM space”, and reflects strong demand for its products, JPMorgan Chase & Co analyst Jay Kwon wrote in a research note last week. “We expect strong share momentum to continue near term.”

Kwon is one of 40 analysts that have a ‘Buy’-equivalent rating on the stock, with just three ‘Hold’ recommendations and no ‘Sells’. The average sell-side price target indicates an expected return of 20% over the next 12 months.

Options traders are bullish too, with this year’s average daily call volume up more than 57% from last year, according to Bloomberg calculations. The most popular contract traded on Feb 15 was a bet that the stock will rise another 4% by mid-March.

Upcoming catalysts include Nvidia’s earnings report on Feb 21, which should provide more details on the outlook for AI. Investors will also keep an eye out for news of further partnerships or progress by rivals for any early signs of leadership change in this burgeoning field.

“Wielding a big competitive advantage in HBM, SK Hynix could capture a large market share in the DRAM industry,” Masahiro Wakasugi, an analyst at Bloomberg Intelligence, wrote in a note. “Its HBM DRAM dominance is poised to persist in the near term, given its deep-rooted relationships with AI processor designers.” — Bloomberg

  • This article first appeared in The Malaysian Reserve weekly print edition