SK Hynix Achieves Six-Year High Profit Driven by AI Chip Demand Surge
Key Insights:
- SK Hynix reported its highest quarterly profit since 2018, driven by booming AI chip demand and strong sales of HBM and eSSDs.
- Despite record profits, SK Hynix shares dropped 8.4%, reflecting unmet high investor expectations in the tech sector.
- SK Hynix plans to ship next-gen HBM chips, maintaining its lead in the high bandwidth memory market amid growing AI demand.
South Korean semiconductor manufacturer SK Hynix announced its highest quarterly profit since 2018, attributed to surging demand for artificial intelligence (AI) chips. The company, a major supplier to Nvidia, has seen substantial growth due to increased demand for high bandwidth memory (HBM) used in generative AI chipsets.
For the April to June quarter, SK Hynix reported an operating profit of 5.47 trillion won ($3.96 billion), marking a significant turnaround from a 2.9 trillion won loss in the same period last year. This performance aligns with the LSEG SmartEstimate, which aggregates predictions from consistently accurate analysts. Revenue saw a notable increase, rising by 125% to a record 16.4 trillion won.
Despite these strong financial results, SK Hynix shares fell by as much as 8.4% in morning trade. This decline mirrored drops in U.S. technology stocks, including Nvidia, as investor expectations for tech firm earnings were not fully met.
Increased AI Demand Drives Growth
SK Hynix has benefited greatly from the AI-driven demand for high-end chips and enterprise solid-state drives (eSSDs). The company’s early investment and strategic entry into these segments have positioned it advantageously in the market.
Kim Kyu Hyun, Head of DRAM Marketing, emphasized the continuing growth in AI demand, projecting that next year’s HBM shipments would more than double this year’s figures.
CFO Kim Woohyun noted that DRAM prices are rising, driven by explosive demand for high-end DRAM chips such as HBM, which are essential for data center servers and on-device AI services. He pointed out that chipmakers are focusing their production capacity on HBM despite an incomplete recovery in traditional buyer demand.
Leadership in HBM Market
SK Hynix leads the market for high bandwidth memory (HBM) and is a primary supplier to Nvidia, competing with Samsung Electronics and the U.S.-based Micron. Nvidia controls approximately 80% of the AI chip market.
In March, SK Hynix commenced mass production of fifth-generation HBM chips, known as HBM3E, with initial shipments to Nvidia.
The company plans to ship the next versions of HBM chips, including the 12-layer HBM3E starting in the fourth quarter and the HBM4 in the second half of 2025. Sources indicate that Samsung has yet to meet Nvidia’s standards for HBM3E chips, though its fourth-generation HBM, named HBM3, has been approved by Nvidia for use in less-sophisticated graphics processors, such as the H20 for the Chinese market.
Market and Investor Reactions
While SK Hynix’s technical leadership and market dominance are clear, investor expectations remain extremely high. Analyst Lee Min-hee of BNK Investment & Securities remarked that although SK Hynix aims to maintain its technical edge over competitors, the high investor expectations might not always translate into immediate stock price increases.
According to analysts, HBMs could constitute 20% of SK Hynix’s DRAM chip profit by the end of 2024, up from nearly 0% in the first half of 2023. This growth is anticipated as Nvidia accelerates its plans for next-generation graphics processors to cater to the burgeoning demand fueled by the generative AI boom.
SK Hynix CEO Kwak Noh-Jung previously stated that the company’s HBM chips are sold out for the current year and nearly sold out for 2025. As one of South Korea’s top stock picks amid the AI surge, SK Hynix shares have increased by 47% year-to-date as of Wednesday.
Editorial credit: Michael Vi / Shutterstock.com
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