(July 29): SK Hynix Inc earmarked at least US$31 billion (RM126.71 billion) in capital spending this year after reporting a six-fold surge in quarterly profit, a record outlay that coincides with growing fears about overinvestment in artificial intelligence (AI) capacity.
SK Hynix said it expects its capital investments to rise around 50% to at least 45 trillion won (US$31 billion or RM130 billion). It posted margins of more than 80% for the June quarter — a high watermark — because of the endemic memory shortages that have helped raise prices it charges customers like Apple Inc and Nintendo Co.
Yet the Korean company’s shares fell 11% in Seoul Wednesday, reflecting both the sky-high expectations that surround the AI industry’s linchpins and the growing concerns that big tech firms such as Meta Platforms Inc are building more data centers than they need. Korea’s benchmark Kospi fell for a second straight day.
SK Hynix executives brushed aside those fears on Wednesday, telling investors they’re signing long-term contracts with no end in sight to explosive demand. They echoed SK Group chairman Chey Tae-won’s view that demand will outpace supply till at least 2030. It’s now preparing to deliver the next-generation of high-bandwidth memory, known as HBM4E — in bulk to top customer Nvidia Corp in 2027. And bit growth, or unit shipments of memory capacity, should accelerate in the second half, executives said.
“Investor expectations might have gotten a bit excessive,” said Jason Lemire, chief investment officer at Bold Wealth Partners. “The results need to be put into perspective, though. These are amazing numbers. The company is firing on all cylinders, and faces so much demand pressure that it decided to radically increase its capex numbers.”
Despite consistently strong numbers, SK Hynix’s shares have headed south since June after doubts grew about whether global AI spending will justify the chip sector’s lofty valuations. Tech companies’ rising debt levels are also weighing on investors’ minds. The growing amounts of leverage tied to players like SK Hynix in particular has also turbo-charged volatility across Korea’s bourse, wiping out roughly 45% of the company’s value in about a month.
Investors worry that soaring chip costs may trigger a broader economic slowdown, pushing prices of electronics higher and spurring manufacturers to cut production of devices like PCs and smartphones. Brokerages including Mirae Asset Securities Co have trimmed their second-quarter profit estimates for SK Hynix in recent weeks, citing moderated growth in average selling prices of chips.
Chipmakers have pushed back, saying that demand is expected to outstrip supply for the long term. They point to customers such as cloud service providers ratcheting up orders for memory, lifting both volumes and margins. SK Hynix chief executive officer Kwak Noh-Jung told Bloomberg earlier this month that the severe memory chip shortages that are roiling the computer, car and device makers would likely persist beyond 2030.
SK Hynix’s net income surged a bigger-than-expected 1,242% on one-time investment gains in the June quarter, shoring up the company’s financial strength. Operating profit rose 557%, but still fell short of elevated projections. Revenue also came below the average analyst estimate.
“Demand is strong, and the AI memory story hasn’t broken, but expectations had simply moved ahead of what even another record quarter could deliver,” said Josh Gilbert, Etoro’s lead analyst for APAC and the Middle East. “Its second quarter is a lesson in just how high the bar now sits for anything tied to AI.”
SK Hynix, along with Samsung Electronics Co and Micron Technology Inc, dominates global memory supply. The trio has increasingly shifted production in recent years toward high-bandwidth memory used in Nvidia’s AI accelerators, tightening supplies of conventional memory.
Attention now is on SK Hynix’s pricing ability. SK Hynix won multiyear contracts with around 10 customers, it said. And last week, parent SK Group signed a pact with Nvidia on a partnership spanning deals worth more than US$500 billion. The figure includes money that Nvidia will spend buying memory chips, as well as purchases of supercomputers, Nvidia CEO Jensen Huang told Bloomberg Television.
The less-than-expected operating profit was mainly because of a somewhat weaker product mix, said Sanjeev Rana, head of research at CLSA Securities Korea. “2027 is still going to be a year we will see memory supply being very tight. After such a big correction recently it’s a good buying opportunity.”
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