SK Hynix posts record earnings, but share price keeps falling

SK Hynix has set another all-time quarterly earnings record, but market attention has shifted from the results themselves to the variables that will shape the share price going forward. Despite operating profit surpassing 60 trillion won ($40.9 billion), the figures came in slightly below analyst expectations. Investor sentiment has been further dampened by a pullback in US AI semiconductor stocks and the upcoming stock market listing of China's CXMT. The focus is now squarely on whether the company can sustain its growth momentum in the second half of the year.

SK Hynix disclosed Wednesday that its second-quarter operating profit on a consolidated basis reached 60.54 trillion won, a 557.2 percent increase from the same period last year. Sales rose 256.8 percent to 79.32 trillion won, while net profit came in at 93.92 trillion won. Although operating profit hit a record high, it fell 4.7 percent short of the market consensus of 63.55 trillion won compiled by financial data provider Yonhap Infomax.

The share price showed only a limited rebound Wednesday despite the earnings announcement. The stock opened about 1 percent higher than the previous session but fell well short of recovering the 14.65 percent plunge recorded Tuesday. Compared with the end-of-June closing price of 2.65 million won, the opening price Wednesday of 1.57 million won represented a 40.9 percent decline over the course of a month. SK Hynix's American depositary receipts listed on NASDAQ also fell Tuesday, closing at $130.17, down 8.98 percent and below the ADR offering price of $149. A string of negative catalysts — a correction in US AI chip stocks, the CXMT listing, and reports of China developing deep ultraviolet lithography equipment — has weighed on investor sentiment across the memory chip sector both at home and abroad.

Market attention is focused less on this quarter's results than on whether the AI investment cycle will continue. Sustained expansion of AI spending is seen as a prerequisite for keeping HBM demand strong and memory chip prices elevated. Analysts view the ramp-up of HBM4 supply, memory chip price negotiations, and the trajectory of AI investment as the key variables driving second-half earnings and the share price. The earnings releases from Microsoft and Meta, scheduled for early Thursday morning Korean Standard Time, are also being watched as a gauge of the AI infrastructure investment outlook.

The expansion of long-term supply agreements, or LTAs, is also cited as one of the variables for assessing the sustainability of second-half earnings. Analysts see broader LTA adoption as a development that could reduce earnings volatility for memory chip makers and trigger a revaluation of their corporate worth.

Kim Seon-woo, an analyst at Meritz Securities, said the growing number of long-term supply agreements and partnerships "are not simply sales contracts but structures that generate long-term demand," adding that they "can narrow the gap between production and demand forecasts, enhancing the long-term operating leverage effect."

Markets hoping for a corporate revaluation are also watching shareholder return policies. Analysts note that as cash generation improves rapidly, there is a growing possibility of additional shareholder return measures such as dividend increases or share buyback and cancellation. Son In-jun, an analyst at Eugene Investment & Securities, said that "if detailed terms of long-term supply agreements are presented alongside additional shareholder return policies, it could strengthen confidence in long-term earnings stability and lead to a revaluation of the company's worth."