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SK Hynix Inc. Shares Surge Amid AI-Powered Optimism
Shares of South Korea's SK Hynix Inc., a major supplier to Nvidia Corp., have soared over 90% in the past year, with Wall Street forecasting further gains. No fewer than 19 analysts upgraded their forecasts in the past month for this leading provider of high-bandwidth memory (HBM) chips to Nvidia’s artificial intelligence (AI) products. The bullish outlook is attributed to the vast potential of AI and the likelihood of positive earnings surprises.
Goldman Sachs recently increased its stock-price target to 290,000 won ($210), suggesting a 25% rise from the current level. Similarly, Citigroup elevated its forecast to 350,000 won, indicating a potential surge of over 50%. "The current share valuation doesn’t fully reflect the high profitability of high-bandwidth memory chips compared to traditional memory chips," remarked Roh Jongwon of Infinity Global Asset Management in Seoul.
Optimistic Earnings Forecast
According to the median estimates compiled by Bloomberg, SK Hynix is projected to report a second-quarter operating profit of 5 trillion won on July 26, marking its best performance in six years. This recovery is driven by rising memory-chip prices and growing demand for high-end devices utilizing AI technologies. Citi's Peter Lee noted that their bullish 350,000 won target factors in historical peaks with a discount, emphasizing that markets may yet fully appreciate AI’s potential, akin to the early days of smartphones.
Valuation Concerns
Despite the encouraging outlook, some investors urge caution as valuation multiples climb. SK Hynix currently trades at 2.9 times book value, the highest since at least 2011. Yoon Joonwon of DS Asset Management expressed concerns about the high valuation, even though he expects earnings to exceed market expectations this year and next. The uncertainty leaves the market cautious.
Market Volatility
Recent fluctuations in SK Hynix shares reflect this uncertainty. The stock dropped as much as 4.7% Thursday following reports that Samsung Electronics might negotiate with Nvidia to supply its own HBM chips, although Samsung later refuted these claims. Furthermore, SK Hynix's ambitious $75 billion investment plan through 2028 raises the possibility of an oversupply, which could depress memory chip prices and cause market instability. "With uncharted territory, volatility is inevitable," Lee from Citigroup concluded.
Future Prospects
The rapid advancements within AI and memory technology sectors underline SK Hynix's potential, as well as inherent risks. While Wall Street remains predominantly optimistic, the evolving landscape demands careful monitoring by investors as SK Hynix navigates these transformative yet volatile times.
