SK Hynix is up 3,500% (give or take) since the original COVID panic.
Mull that over for a moment. If you threw a measly five grand at the world’s second-largest memory chip maker on March 19, 2020, at the lows, and sold it all Wednesday, at the highs, you’d have around $180,000. (Hindsight’s 20/20!)
SK Hynix is the poster child for the semi rally — for “chips gone wild,” so to speak. Let’s run through some more numbers. You know, just for fun.
The stock’s up eight weeks in a row, a stretch during which the worst week was a 5% gain, the best a 31% surge. It’s risen every month but two since September. In three of the seven winning months, the stock rose 60% or more, with May’s gain on track to be the best of the bunch at almost 75%. Since the “Liberation Day” lows, SK Hynix is up 1,350%.
There’s the chart. Or a chart. You could draw any number of eye-watering pictures to illustrate the situation, which can be summed up as follows: “Who needs crypto?!”
On the heels of Micron’s astounding 20% gain on Tuesday, SK Hynix rose nearly 10% in South Korea, minting another $1 trillion company in the process.
It’s easy enough to lampoon the stock’s vertical ascent as absurd (plot it using a regular, as opposed to a log, scale, and you’ll have a difficult time suppressing the chuckles). But as you might’ve heard, the tech world’s grappling with an acute dearth of memory amid the AI buildout.
There’s no end in sight for that shortage. SK Hynix, which said last month that supply will lag demand for at least three more years, has a quasi-monopoly on HBM, with ~60% of the market. That’s a pretty advantageous position to be in.
The bull case says this cycle’s different for the memory chip industry. That AI’s changed the game. That, at the very least, the boom phase can last much longer this time. Maybe even “forever” (not literally, but you know what I mean), given the severity of the shortage and the size of the implicit backlog.
In a piece published three weeks ago, Reuters detailed a flood of “unprecedented” financing offers from big-tech, which is beseeching SK Hynix to accept funding for new capacity. The company’s wary of such arrangements, though, worrying any such tie-ups might make it beholden.
As one source for the linked article put it, “Regardless of the type of offer, available capacity is essentially zero right now. There isn’t even a small portion that can be designated for a specific customer.”
This is an extremely challenging valuation exercise. On one hand, profits at SK Hynix rose 400% last quarter and, as noted, demand’s insatiable. It trades at — get this — just 8x on a forward multiple. So, 16 turns cheaper than Nvidia and 22 turns cheaper than the Mag7.
Of course, that ostensibly bargain-basement valuation would rise dramatically in the event profit projections were cut. Put differently, if AI demand doesn’t materialize as expected, the memory market could find an equilibrium much quicker than anticipated.
For now, we’re left to ponder the paradox of a stock that’s up 1,000% YoY and yet still trades on a sub-10x P/E multiple. That could be a ringing endorsement of the market’s claim on being an efficient, forward-looking price discovery mechanism or a testament to investors’ penchant for irrationality built on wild extrapolation. Maddeningly, it’s impossible to know which.
