SK hynix shares took a sharp hit last week, with a confluence of negative news triggering market panic. However, JPMorgan believes the market reaction has been overdone.
According to a research report published by JPMorgan on August 9, SK hynix shares fell 15% last week, compared to a 5% drop in the Kospi index and a 9% decline for Samsung Electronics. The sell-off was driven by three major market rumors: reduced HBM chip purchases from Nvidia and pricing uncertainty, a vague timeline for shareholder returns combined with a subsidiary IPO plan, and the disclosure of massive infrastructure capital expenditure.
Analyst Jay Kwon addressed each of these concerns in the report, stating that "the worst is over" and expecting sentiment to gradually improve over the medium term. JPMorgan maintains an "overweight" rating on SK hynix with a target price of 2,750,000 won (based on June 2027), implying nearly 94% upside from last week's closing price.
The report highlighted three key catalysts expected over the next one to two months: an update on the shareholder return plan (before the end of the third quarter), an update on HBM contract pricing (before the end of the third quarter), and an update on the U.S. subsidiary listing plan (within one month).
Shareholder Returns: Timeline Accelerated, Disclosure Expected by Q3 End
Uncertainty surrounding shareholder returns was a key trigger for last week's sell-off. SK hynix has disclosed via regulatory filings that it is actively evaluating additional shareholder return measures to enhance shareholder value, with plans to finalize and announce a plan before the end of the third quarter.
This timeline is significantly earlier than management's previous "by year-end" comments made during the second-quarter earnings call. JPMorgan estimates that SK hynix will generate an unprecedented scale of free cash flow over the next three years, with cumulative free cash flow projected to exceed 800 trillion won. The report noted that investors generally expect SK hynix to make more substantial shareholder return commitments compared to its Japanese and U.S. memory peers, given its significantly higher profitability over the past 12 months, including gains from the Kioxia equity sale. The introduction of a progressive shareholder return policy is expected to be met with a positive market reaction.
HBM Pricing: 50% Discount Rumors Untrue, JPMorgan Provides Conservative Forecast
Last week, market rumors circulated that SK hynix would price its 2027 HBM4 products at 50% of a competitor's price, sparking widespread concern over the company's profitability. The report explicitly stated that these reports are "inaccurate."
JPMorgan adopted a relatively conservative pricing assumption—lower than a 40% year-on-year increase forecast for 2026—and provided three supporting points. First, memory suppliers have an incentive to secure higher premiums for long-term agreement products like DDR5, LPDDR5, and NAND, which have significantly higher margins than HBM. Second, Nvidia is SK hynix's largest customer, and the two companies collaborate on multiple products, allowing SK hynix to negotiate from a multi-year procurement perspective. Third, HBM pricing is renegotiable annually, providing room for adjustment in subsequent years. Management's comments suggest that HBM will face a multi-year shortage, and short-term contract pricing may not be the primary consideration. If the company prioritizes securing three-to-five-year long-term agreement volumes, short-term price concessions may be strategically justified. The report also noted that if SK hynix ultimately achieves a higher-than-expected HBM average selling price, it would represent an upside risk to earnings per share.
54 Trillion Won Capital Expenditure: Large in Scale but Part of Existing Plan
SK hynix announced a massive capital expenditure plan of 54 trillion won (approximately $38.1 billion) to build two new memory chip factories in South Korea, a move that sparked concerns about financial strain. While the scale is large, the report indicates it is a continuation of the company's established strategy.
According to the report, of this capital expenditure, 35.2 trillion won is allocated to a DRAM factory at the Yongin Y2 cluster (slightly higher than the 31 trillion won invested in the first Yongin phase), and 19.1 trillion won is for a NAND factory at Cheongju M17. The Yongin Y2 is the second of four clusters in Yongin, with groundbreaking planned for July 2027, primarily for capacity expansion after 2031. The Cheongju M17 will break ground in February of next year, with the first cleanroom targeted for completion by the end of 2028, and the investment cycle extending to April 2031. This schedule aligns with the company's previously disclosed goal of "achieving 1 million wafer capacity by 2030" and is not an unexpected incremental expenditure.
Solidigm IPO: Strategic Value Questioned, Still Under Evaluation
Regarding rumors of a U.S. listing for SK hynix's subsidiary, Solidigm, management stated that the plan is still under evaluation and will provide further clarification within one month.
The report noted that SK hynix acquired Solidigm from Intel in 2021, primarily to obtain enterprise-level solid-state drive solutions (floating gate technology for QLC solutions). After a brief period of losses in 2023, the acquisition has yielded substantial returns as the AI-driven NAND market has entered a super cycle, with current NAND margins exceeding 70%. Given that SK hynix's ample internal cash flow and balance sheet can fully support capital expenditure without diluting existing shareholder equity, the strategic value of a Solidigm IPO from a financing perspective is limited.
Furthermore, the report pointed out that a Solidigm IPO may conflict with South Korea's 2026 commercial law revision concerning dual listing regulations and lacks sufficient strategic logic in terms of broadening the investor base and valuation re-rating.
Comments