---
endpoint: analytics
pattern: Technology
status: done
latency_ms: 243699
conversation_id: 7edd7747-2dc5-47f0-aab4-ef8ca1b5a4cf
citations: 4
created: 2026-05-31 20:18:25Z
---

# What’s the bull case bear case for SK Hynix?

# SK Hynix (000660 KS) — Bull Case vs. Bear Case

CLSA's house view is High-Conviction Outperform with a target of ₩350,000 (raised from ₩290,000 in late-June 2025) on a 1.7x PB multiple — pegged at +2 std above the 10-year average of 1.2x [3][5][11]. SK Hynix's 1Q26 print validated the bull case operationally: record revenue of **KRW 52.6tn (+60% QoQ, +198% YoY)** and **operating profit of KRW 37.6tn at a 72% operating margin** — both all-time highs [14][15].

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## BULL CASE

### 1. HBM monopoly economics, with the moat widening into HBM4
- SK Hynix is the dominant HBM supplier — **~70-80% of HBM revenue goes to NVIDIA**, with the remainder to ASIC customers; both are pulling HBM3E (mix shifting toward 12-Hi which carries higher margins) [7][12].
- The HBM market has **decoupled from commodity DRAM**: it has migrated to a "foundry-like, order-first-then-produce" model where customers lock in volume and price ahead of production — deeper customer integration, longer cycle visibility, structurally lower volatility [8].
- **HBM4** mass production starts in **Sep/Oct 2025**, ramping into 2H26 with **~30% ASP premium over HBM3E 12-Hi** thanks to higher production cost and substantial performance uplift. HBM4 is expected to drive blended ASP and profitability through 2026 [1][2].
- **MRMUF packaging + advanced DRAM node** is the durable technical lead; SK Hynix expects to stick with MR-MUF through HBM4/16-Hi before hybrid bonding becomes ecosystem-ready — extending the gap vs. Samsung/Micron [7][8].
- CLSA models **HBM shipments +95% in 2025 and +40% in 2026**; HBM revenue share of DRAM is approaching 50% in 1Q25 and expected to stabilize at **55-60% in 2027-28** [13].

### 2. Customer diversification reduces NVIDIA concentration risk
- SK Hynix is seeing **interest from new HBM customers — mainly ASIC players (custom AI silicon)** — which could drive both customer diversification and 2026 shipment upside [1][3].
- 2026 HBM volume contracts: **70-80% already locked by 1H25** with deeper specificity (HBM3E 8-Hi vs. 12-Hi vs. HBM4); ASIC customer negotiations are concluding in 2H25 [8].

### 3. Conventional DRAM tightening — second leg of the bull case
- Because all three suppliers (Hynix, Samsung, Micron) are **allocating an increasing share of wafer capacity to HBM**, supply of conventional DRAM is structurally tightening — keeping ASPs supported despite tariff/demand concerns in 2H25 [1][12].
- Micron's FY3Q25 beat and FY4Q guide validated this: **healthy customer inventories, constructive 2H25 demand, server/AI DRAM demand strong, eSSD recovery emerging** [11].
- CLSA expects **global cloud capex +35% in 2025 and +20% in 2026** — direct tailwind to HBM and high-density server DRAM [12].

### 4. Operational proof points — already showing up in 1Q26 results
- **KRW 52.6tn revenue, +198% YoY, +60% QoQ** — first time crossing KRW 50tn in a quarter [14].
- **OP KRW 37.6tn, 72% OPM** — both all-time highs, with DRAM ASPs up "mid-60%" QoQ and NAND ASPs up "mid-70%" QoQ [15].
- Management: "Customers are prioritizing securing volume over pricing… we expect a favorable pricing environment to continue" — the supply/demand imbalance is durable [16].
- **NVIDIA Vera Rubin design-in confirmed**: SK Hynix began mass production of 192GB SOCAMM2 on 1c-nm — "more than twice the bandwidth of conventional RDIMMs, over 75% better energy efficiency" — extending share into the next NVIDIA generation [17].

### 5. CLSA earnings trajectory & valuation
| Metric | 2024 | 2025CL | 2026CL | 2027CL |
|---|---|---|---|---|
| Revenue (₩tn) | 66.2 | 86.2 | 94.9 | 112.4 |
| Operating profit (₩tn) | 23.5 | 38.6 | 43.1 | 47.9 |
| OPM | 35% | 45% | 45% | 43% |
| DRAM OPM | 46% | 58% | 60% | 57% |

Source: CLSA estimates [13]
- **2025 OP +64% YoY, 2026 +12%, 2027 +11%** — a sustained super-cycle vs. typical 12-18 month memory cycles [13].
- CLSA argues for further multiple re-rating: "rising dominance of highly profitable HBM and hence **lower cyclicality of its earnings**" — historical forward PB has gone to 2.7x in 2012, 1.9x in 2014, 2.0x in 2024 [5][10].

### 6. Capex flexibility / disciplined supply
- 2025 capex up only slightly YoY; >50% on infrastructure (M15X coming on in 4Q25 up to 90k wafer capacity max; Yongin opens 2Q27) [9].
- Hynix has **deliberately ruled out a US front-end fab** (only an advanced-packaging facility), reflecting cost discipline rather than political appeasement [9].
- **Inventories normalized**: 1Q25 DRAM ~7 weeks, NAND ~10-11 weeks — far below 2023 peak — i.e., supply discipline is real [bull case structural].

---

## BEAR CASE

### 1. Geopolitics — Wuxi/Dalian China fabs at risk
- WSJ reported (June 2025) that the **US Department of Commerce may revoke indefinite waivers** that allow US companies to export memory production equipment to SK Hynix's (and Samsung's) China fabs. Whether or not the threat is consummated, **it raises long-term sustainability questions for Korean memory production in China** — and could force accelerated, costly fab buildouts in Korea [bear: WSJ China fab restriction risk].
- SK Hynix continues to produce DDR4/LPDDR4 in Wuxi (small scale) and is doing a 1a-nm migration there to support DDR5; the Dalian NAND fab's roadmap beyond 192L is "uncertain" — meaning further US action would pinch [9].
- Tariffs are a known overhang: CLSA flags **the ongoing US-China trade war and geopolitical tension** as the #1 risk to the thesis [4].

### 2. Chinese DRAM competition (CXMT) — manageable today, but watch the curve
- CXMT impacted memory most acutely in 2H24 in the **low-end domestic DDR4/LPDDR4 market** with Chinese subsidies driving steep price erosion [6].
- Hynix's view is that CXMT's DDR5 will be **unable to support mainstream demand, especially mobile (LPDDR5), due to low yield and poor power efficiency**, and that the **EUV gap** is the long-run differentiator [6].
- But the bear read: CXMT only needs to take low-end / commodity DRAM share to **squeeze the non-HBM portion of Hynix's DRAM mix** — exactly the segment whose tightness underwrites part of the bull case.

### 3. Cyclical demand softness — PC/mobile already wobbling
- In the 1Q26 call, management acknowledged: "In the PC and mobile markets, **some signs of demand softening have emerged**, including adjustments in shipments and changes in product portfolios due to cost pressures stemming from higher memory prices" — meaning the upcycle is starting to break consumer demand [17].
- CLSA flags **delayed demand recovery in the IT and server market** as a key risk [4].
- 2026 quarterly assumptions show DRAM ASP turning **-3% / -4% in 1Q26 / 2Q26** before re-accelerating — i.e., even in the bull case there is a meaningful ASP roll-over in 1H26 [CLSA quarterly model 2025-06-19 doc].

### 4. NVIDIA concentration is real
- With ~70-80% of HBM going to NVIDIA, **any NVIDIA hyperscaler order push-out, AI capex reset, or Samsung HBM3E qualification at NVIDIA** would hit Hynix's most profitable product line directly [7].
- US restrictions on the H20 already removed an "incremental" upside source from Hynix's H20-related HBM sales (though management said it doesn't change the "double HBM revenue in 2025" guidance) [7].

### 5. Samsung catching up + Micron expanding
- Samsung is pursuing **aggressive HBM capacity expansion** and **potential HBM3E qualification at NVIDIA**; if achieved, this would compress Hynix's HBM pricing power and share [Samsung investment thesis chunk].
- Micron's FY3Q beat shows the third HBM player gaining traction — adding incremental competing capacity in 2H25-2026 [11].

### 6. HBM customer pricing pressure / cost inflation
- HBM4 cost is rising more meaningfully than prior generations (**10-20% increase per estimates**); Hynix has to reflect this in pricing — but contract talks are taking longer in 2025 as customers push back on product mix and pricing specificity [8].
- ASIC customer negotiations are still open in 2H25; if ASIC customers consolidate on Samsung HBM3E or Micron HBM3E to multi-source, Hynix's 2026 ASIC volume diversification thesis weakens [8].

### 7. Cycle peak risk + structural payout
- 2025 free cash flow growth is forecast at ~+26-65% (depending on scenario), but **2027 FCF turns negative YoY (-12% to -17%)** as capex/sales rises from 24.1% (2024) to ~26-27% (2026-27) — i.e., the late-cycle capex bill could erode the FCF re-rating story if ASPs roll over [CLSA cash-flow ratio table 2025-06-19].
- CLSA conservative 2025/26 NAND outlook: NAND ASPs **-11% in 2025 and -3% in 2026**, with NAND OP swinging to losses in some scenarios — meaning if NAND deteriorates further, group OPM mix-shift gets reversed [13].

### 8. Valuation already pricing in much of the upside
- The ₩350,000 target is on **+2 std above 10-year average PB** — a demanding starting point. Hynix would need to **deliver HBM customer diversification AND maintain HBM dominance** for the multiple to expand toward the historical 2.0-2.7x range [5][10].

---

## NET TAKEAWAY

The bull case is structurally well-evidenced: HBM dominance + HBM4 ASP premium + customer diversification into ASIC + conventional DRAM tightening + a cloud-capex tailwind — collectively driving a sustained mid-40s OPM through 2027 and giving CLSA confidence to anchor valuation 2 std above 10-year average PB [1][3][5][10][12][13]. 1Q26 results (KRW 37.6tn OP, 72% OPM) demonstrate the thesis is already paying out [15].

The bear case is dominated by **exogenous (geopolitical) and binary (Samsung qualifying at NVIDIA) risks** more than by operational concerns: US export controls on China fabs, Chinese low-end share gains, NVIDIA concentration, and Samsung/Micron catching up on HBM3E qualification. Cyclical PC/mobile softness is already visible but is being offset by AI server demand — for now [4][6][17].

The asymmetric set-up at current price: bull case is durable through 2026 with HBM4 ramp; bear case requires a **specific geopolitical or competitive catalyst** to derail — making the risk/reward favor longs unless one believes a US-China escalation around China memory fabs is imminent.

---

**Sources**
[1] CLSA — SK Hynix HC O-PF: Expecting another strong quarter (19 June 2025) — 607962387LinqAlpha.PDF (HBM4 ASP premium, new ASIC customers)
[2] CLSA — SK Hynix HC O-PF: Expecting another strong quarter (19 June 2025) — 607962387 (HBM4 Sep/Oct ramp)
[3] CLSA — Micron read-across (25 June 2025) — 607962817 (raise TP to ₩350,000; HBM dominance)
[4] CLSA — SK Hynix HC O-PF: Expecting another strong quarter (19 June 2025) — 607962387 (Investment risks)
[5] CLSA — SK Hynix HC O-PF: Expecting another strong quarter (19 June 2025) — 607962387 (Valuation: 1.7x PB)
[6] CLSA — SK Hynix HC O-PF: Takeaways from virtual NDR (13 May 2025) — 607959246 (CXMT / China competition / EUV gap)
[7] CLSA — SK Hynix HC O-PF: Takeaways from virtual NDR (13 May 2025) — 607959246 (HBM customer mix: 70-80% NVIDIA + ASIC)
[8] CLSA — SK Hynix HC O-PF: Takeaways from virtual NDR (13 May 2025) — 607959246 (2026 HBM contracts, MR-MUF tech, HBM4 cost +10-20%)
[9] CLSA — SK Hynix HC O-PF: Takeaways from virtual NDR (13 May 2025) — 607959246 (Capex: M15X, Yongin, US packaging-only)
[10] CLSA — Micron read-across (25 June 2025) — 607962817 (HBM shipments +95% 2025 / +40% 2026; re-rating thesis)
[11] CLSA — Micron read-across (25 June 2025) — 607962817 (Micron FY3Q beat / FY4Q guide)
[12] CLSA — Micron read-across (25 June 2025) — 607962817 (cloud capex +35% 2025 / +20% 2026; ASIC diversification)
[13] CLSA — Micron read-across (25 June 2025) — 607962817 (2024-2027 P&L; DRAM OPM 58-60%)
[14] SK Hynix 1Q 2026 Earnings Call (22 April 2026) — Record KRW 52.6tn revenue (+198% YoY)
[15] SK Hynix 1Q 2026 Earnings Call (22 April 2026) — KRW 37.6tn OP, 72% OPM all-time high
[16] SK Hynix 1Q 2026 Earnings Call (22 April 2026) — "Customers prioritizing securing volume over pricing"
[17] SK Hynix 1Q 2026 Earnings Call (22 April 2026) — 192GB SOCAMM2 for NVIDIA Vera Rubin

## Citations

- [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
- [17] **SK hynix, Inc., Q1 2026 Earnings Call, 22-April-2026 8** · external

