The selloff in South Korea's AI-driven stock market spilled over to the United States on Monday, with SK hynix American Depositary Receipts tumbling as much as 9.3%, highlighting growing investor concerns that the rally has become overextended.
This decline left the SK hynix ADRs just a few dollars above their $149 issue price from last week. Shares of memory and storage companies in the US market fell broadly, with Micron Technology, SanDisk, and Western Digital all dropping more than 6%.
Previously, SK hynix shares plunged a record 15% in South Korean trading, dragging the benchmark Kospi index down 9% and triggering a market-wide trading halt. Its peer Samsung Electronics fell nearly 11%. Exchange data compiled by Bloomberg shows foreign investors sold 1.7 trillion won ($1.1 billion) worth of Kospi stocks on Monday, with sales of SK hynix accounting for a large portion.
Traders pointed to market worries about earnings falling short of expectations. The drop in its ADRs erased a 13% gain since its trading debut last Friday.
Nic Puckrin, founder of Coin Bureau and a cross-asset analyst, wrote in a report, "Today's near-record decline for SK hynix during Asian trading hours is no longer just a South Korea problem; it is now injecting this volatility into the Nasdaq."
He stated, "In fact, these two markets are becoming more intertwined than ever and are influenced by each other's tech stock concentration. This is a vicious cycle that should concern equity investors."
Hebe Chen, a market analyst at Vantage Global Prime, noted that SK hynix is currently in a period of turbulence following a dopamine surge, where the initial excitement that drove the stock higher is fading, being replaced by expectations for a more severe market adjustment. A 30% drop from the peak does not necessarily mean the stock has bottomed; leverage, index concentration, and crowded positions could still turn every pullback into a new round of forced selling.
The $26.5 billion US listing of SK hynix has drawn significant market attention, seen as a key test for overseas companies' demand for US listings and the sustainability of the AI boom. According to informed sources, despite recent external concerns about overvaluation and excessive spending on AI stocks, the deal was still oversubscribed by more than seven times.
Chan H Lee, managing partner at Seoul-based hedge fund Petra Capital Management, said the company's ADR listing was very successful, but the market had already priced in most of the positive news. Monday's stock weakness appears more like a typical "sell on the news" reaction and profit-taking by investors, rather than any change in fundamentals.
A report released Monday by Korea Investment & Securities predicted that SK hynix's operating profit for the latest quarter might be 8% below market consensus, attributing this to the company's high revenue dependence on HBM, where price increases have been slower than for traditional memory chips.
The AI frenzy has pushed market expectations to levels that are increasingly difficult to exceed. Samsung's stock plunged after releasing preliminary results last week, putting pressure on the global tech supply chain.
As a major supplier of High Bandwidth Memory (HBM) required for NVIDIA's AI processors, SK hynix has been highly favored by global investors. As the AI boom drove up prices for various memory chips, leading to record profits, SK hynix's share price listed in South Korea has surged more than 500% over the past year.
As retail investors frantically chase SK hynix and Samsung, volatility in the South Korean stock market has intensified.
The popularity of leveraged Exchange-Traded Funds (ETFs) tracking Samsung and SK hynix has amplified market swings. Since 2000, the Kospi index has triggered circuit breakers 13 times in total, with 7 of those occurrences happening this year.
Richard Tang, Head of Research for Hong Kong at Julius Baer, stated that high market volatility is expected to persist until late July as foreign investors reposition their portfolios.
While overall memory prices continue to rise due to severe supply shortages, HBM supply contracts are typically long-term agreements with less flexibility. This is one reason some argue that AI has created a "supercycle," a new phase that transcends the traditional cyclical demand for chips.
SK hynix CEO Kwak Noh-Jung said in an interview Friday that the memory chip shortage could last beyond 2030. Nevertheless, memory manufacturers are racing to expand capacity, raising market concerns that profits will eventually suffer once demand cools.
Technical indicators suggest the stock has cooled after becoming overheated earlier this year. Nico Rosti, an analyst at MRM Research, said the chipmaker's stock is currently at "severely oversold" levels.
Rosti wrote in a report on Smartkarma that another week of price declines is not impossible, but that would present a buying opportunity. Once the South Korean stock market rebounds, the ADRs should also rise in tandem, making the current level a good entry point.
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