---
endpoint: analytics
pattern: Technology
status: done
latency_ms: 192070
conversation_id: 51b72e61-3df7-4892-8ab5-c40e813e657c
citations: 16
created: 2026-05-31 21:21:52Z
---

# What is the investment thesis for SK Hynix in the current market environment?

# SK Hynix (000660 KS) — Investment Thesis in the Current Market Environment

## Summary View

SK Hynix sits at the apex of a structural AI memory super-cycle. The Q1 2026 print was unprecedented — **revenue of KRW 52.6 trillion (+60% QoQ, +198% YoY), operating profit of KRW 37.6 trillion, and an all-time-high operating margin of 72%** [10]. Management explicitly characterizes the cycle as **structural rather than cyclical**, with the rising memory price cycle "likely to last longer than in the past" because customers are prioritizing volume over price. CLSA (Sanjeev Rana, Harry Kim — Seoul) carries a **HC O-PF (High Conviction Outperform) rating with a target price of KRW 350,000** raised from KRW 290,000 [2], anchored to 2H26 BVPS at a **1.7x P/B multiple (~+2 std above the 10-year average of 1.2x)** [4].

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## Core Thesis Pillars

### 1. HBM Dominance + Diversifying Customer Base
- SK Hynix maintains **leadership in the HBM market**, which it projects will grow at **>50% CAGR (bit basis) through 2028** [1]. Its strong DDR5 transition position adds another profitability tailwind exiting the down-cycle [1].
- **HBM shipments forecast +95% in 2025 and +40% in 2026**, with HBM approaching ~50% of DRAM revenue and stabilizing at **55–60% by 2027–28**, implying lower earnings cyclicality and a potential multiple re-rating [3].
- **Nvidia takes ~70% of HBM supply**; 2026 negotiations are largely concluded, with remaining capacity allocated to new **ASIC customers** (inference chip wave) — driving customer diversification and shipment upside [5]. This is further supported by Korea's planned **KRW 100 trillion sovereign AI / data-center investment** [5].
- Management confirms **"customers demand for the next three years far exceeds our current supply capacity"** [16] — i.e., HBM4 ramp is sold out, qualifying against customers' mass-production schedules.

### 2. HBM4 — The Next ASP Lever
- HBM4 production starts in **Sep/Oct 2025**, with mainstream rollout in 2H26 [6][8].
- CLSA models a **~30% ASP premium for HBM4 vs HBM3E 12-Hi** given higher production costs and meaningful performance gains [8]. This crossover is the key 2026 blended-ASP driver [6].

### 3. AI Workloads Are Broadening Memory Demand Beyond HBM
- Management argues AI is **"evolving rapidly beyond the training phase…into the inference and agentic AI stage,"** which expands the data footprint per workload [11]. As a result, **demand for server DRAM modules (128GB+), enterprise SSDs, and HBM is rising simultaneously**, broadening the demand base for both DRAM and NAND [11].
- 2Q26 guidance: **DRAM shipments +high-single-digit QoQ; NAND shipments +mid-teens QoQ** on 321-layer QLC and enterprise SSD ramp [12].

### 4. Supply-Side Tightness Is Structural
- CLSA's mid-2025 channel checks captured **DRAM bit shipments +17% QoQ vs 12% prior; legacy DDR4 prices +30% QoQ** — driving the 2Q25 OP forecast to KRW 9.0 trillion [7]. Spot DDR4 8Gb hit ~$5.9 in May 2025 (+212% from the March trough).
- Conventional DRAM tightness persists because suppliers are reallocating wafer capacity to HBM and premium products, sustaining ASP momentum [6].
- Management says memory price strength is driven by **structural changes, not temporary supply/demand imbalance**, with customers signing **multi-year LTAs** as memory price/supply uncertainty becomes a "key business risk" for them [15].

### 5. Capacity Build-Out Anchored to Demand Visibility
- 2026 CapEx will rise **significantly YoY**, with the majority of spend going to **Yongin Cluster infrastructure preparation, M15X ramp, and EUV tooling** [13].
- This is disciplined capacity — not the indiscriminate capacity adds that historically broke prior cycles. Hynix retains CapEx discipline tied to demand visibility, mitigating oversupply risk.

### 6. Capital Return — A New Optional Lever
- Management is explicit about pursuing **financial soundness of >KRW 100 trillion net cash AND expanding shareholder returns in parallel** [14]. Beyond dividends, **share buybacks and cancellations** are under active review with an implementation plan to be set within 2026 [14].
- A **US ADR offering registration was confidentially filed with the SEC on 24 March 2026**, targeting a US listing within the year [13] — a potential structural re-rating catalyst by broadening the investor base.

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## Valuation

| Item | Value | Notes |
|------|-------|-------|
| CLSA Rating | **HC O-PF** | High-Conviction Outperform [6] |
| Target Price | **KRW 350,000** | Raised from KRW 290,000 [2] |
| Methodology | 1.7x P/B on 2H26 BVPS | ~+2 std above 10-yr avg of 1.2x [4] |
| Historical Forward P/B Peaks | 2.7x (2012), 1.9x (2014), 2.0x (2024) | Headroom for multiple expansion if HBM customer base diversifies further [4] |
| FY2025E Revenue | KRW 29.9 trillion → FY2026E KRW 37.6 trillion | Steep top-line trajectory |

**Bull case lever:** If HBM customer diversification (Nvidia + multiple ASIC names) holds and earnings cyclicality compresses, P/B multiple expansion beyond 1.7x is plausible [4]. CLSA flags potential re-rating as HBM mix stabilizes at 55–60% of DRAM revenue [3].

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## Catalysts (Forward)

1. **HBM4 mass production ramp** (Sep/Oct 2025 → mainstream 2H26) and pricing finalization [6][8].
2. **HBM customer diversification** beyond Nvidia (ASIC inference customers) — a multiple-expansion lever [5][9].
3. **Faster-than-expected NAND demand recovery** as enterprise SSDs ramp to support AI KV cache workloads [9].
4. **Shareholder return announcement** (buyback/cancellation implementation plan within 2026) [14].
5. **US ADR listing** — broader investor base, valuation re-anchoring [13].

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## Risks

1. **US–China trade & geopolitical tensions** — WSJ reported the US Commerce Department may consider revoking indefinite waivers for memory production equipment exports to Samsung/SK Hynix's China fabs. SK Hynix has ~36% of DRAM and ~37% of NAND capacity in China (2Q25E basis). Near-term, this could tighten DRAM supply further; medium-term, it forces accelerated Korea onshore fab build-out.
2. **Delayed IT/server demand recovery and inventory correction** [9] — particularly relevant given softening signs in PC/mobile end-markets (which Hynix says are currently offset by server strength).
3. **Chinese chipmaker capacity expansion** (CXMT, YMTC) — long-term commoditization risk in legacy DRAM/NAND nodes [9].
4. **HBM customer concentration risk** — 70% of HBM still goes to Nvidia [5]; any Nvidia roadmap slip or share loss to Samsung's HBM3E/HBM4 qualification could pressure shipment assumptions.
5. **Spot price softness as "peak signal"** — CLSA's interpretation (and management's) is that recent spot-price softness is distribution channel inventory release, not a cycle peak, but this remains an interpretive question the market is watching closely.

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## Bottom Line

The investment thesis on SK Hynix today rests on a single core argument: **the AI memory cycle is structural, not cyclical, and SK Hynix is the price-setter in the highest-value subsegment (HBM)** [1][3]. Q1 2026's 72% operating margin and KRW 52.6T quarterly revenue [10], combined with a sold-out three-year forward HBM book [16] and multi-year customer LTAs [15], support an earnings profile that is materially less cyclical than prior memory up-cycles. The principal asymmetry is to the upside: target multiple expansion above 1.7x P/B if HBM customer diversification accelerates [4], the US ADR listing materializes, and shareholder return announcements crystallize within 2026 [14]. Downside risks are concentrated in geopolitics (China fab restrictions) and concentration (Nvidia dependency) — both quantifiable, neither thesis-breaking at current valuation.

---

**Sources**

[1] SK Hynix - HC O-PF (Expecting another strong quarter) — CLSA (19 Jun 2025) — 607962387LinqAlpha.PDF
[2] Korea Memory sector outlook (Micron call read across; solid AI demand) — CLSA (25 Jun 2025) — 607962817LinqAlpha.PDF
[3] Korea Memory sector outlook (Micron call read across) — CLSA (25 Jun 2025) — 607962817LinqAlpha.PDF
[4] SK Hynix - HC O-PF (Expecting another strong quarter) — CLSA (19 Jun 2025) — 607962387LinqAlpha.PDF
[5] SK Hynix - HC O-PF (Expecting another strong quarter) — CLSA (19 Jun 2025) — 607962387LinqAlpha.PDF
[6] SK Hynix - HC O-PF (Expecting another strong quarter) — CLSA (19 Jun 2025) — 607962387LinqAlpha.PDF
[7] SK Hynix - HC O-PF (Expecting another strong quarter) — CLSA (19 Jun 2025) — 607962387LinqAlpha.PDF
[8] SK Hynix - HC O-PF (Expecting another strong quarter) — CLSA (19 Jun 2025) — 607962387LinqAlpha.PDF
[9] SK Hynix - HC O-PF (Expecting another strong quarter) — CLSA (19 Jun 2025) — 607962387LinqAlpha.PDF
[10] SK hynix Inc — Q1 2026 Earnings Call (22 April 2026)
[11] SK hynix Inc — Q1 2026 Earnings Call (22 April 2026)
[12] SK hynix Inc — Q1 2026 Earnings Call (22 April 2026)
[13] SK hynix Inc — Q1 2026 Earnings Call (22 April 2026)
[14] SK hynix Inc — Q1 2026 Earnings Call (22 April 2026)
[15] SK hynix Inc — Q1 2026 Earnings Call (22 April 2026)
[16] SK hynix Inc — Q1 2026 Earnings Call (22 April 2026)

## Citations

- [1] **607962387LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962387LinqAlpha.PDF>
- [2] **607962817LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962817LinqAlpha.PDF>
- [3] **607962817LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962817LinqAlpha.PDF>
- [4] **607962387LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962387LinqAlpha.PDF>
- [5] **607962387LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962387LinqAlpha.PDF>
- [6] **607962387LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962387LinqAlpha.PDF>
- [7] **607962387LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962387LinqAlpha.PDF>
- [8] **607962387LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962387LinqAlpha.PDF>
- [9] **607962387LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962387LinqAlpha.PDF>
- [10] **SK hynix, Inc., Q1 2026 Earnings Call, 22-April-2026 8** · external
- [11] **SK hynix, Inc., Q1 2026 Earnings Call, 22-April-2026 8** · external
- [12] **SK hynix, Inc., Q1 2026 Earnings Call, 22-April-2026 8** · external
- [13] **SK hynix, Inc., Q1 2026 Earnings Call, 22-April-2026 8** · external
- [14] **SK hynix, Inc., Q1 2026 Earnings Call, 22-April-2026 8** · external
- [15] **SK hynix, Inc., Q1 2026 Earnings Call, 22-April-2026 8** · external
- [16] **SK hynix, Inc., Q1 2026 Earnings Call, 22-April-2026 8** · external

