Korean memory-chip manufacturer SK Hynix late last month booked roughly $65 billion in profit for the quarter ended June 30, a 13-fold increase from last year. Hynix earned almost as much money in 90 days as it had in the prior 29 years since its IPO, total.
Shares fell 8.7% after the results. Meanwhile, Advanced Micro Devices reported record sales after the close Tuesday, beating analyst estimates for revenue and profit. Its shares tumbled almost 8% after hours.
The reports, though outstanding on basically every measure, still fell short of Wall Street's sky-high expectations for chip companies.
Investors still reward strong earnings broadly. Upbeat results from companies including Caterpillar and Palantir helped power major indexes higher on Tuesday, with the Dow Jones Industrial Average rising 1.7%, or around 907 points, to a fresh record and its first close above 54000. The S&P 500 added 1.8%, while the Nasdaq composite surged 2.6%, bringing its four-session gain to 8.8% and marking its best such run since April 2025.
But as Wall Street analysts tear up forecast after forecast for memory companies, clearing their bar has become a harder challenge -- even as AI companies' insatiable demand for computing power has created a semiconductor shortage and sent manufacturers' profits soaring.
With a little more than half of the PHLX Semiconductor Index reporting second-quarter earnings so far, profits have grown a collective 144% from a year earlier, according to LSEG data. At the same time, the PHLX Semiconductor Index has retreated about 17% from its June 22 record and briefly entered bear-market territory for the first time since 2024.
"Unprecedented" profit increases had been largely priced in by investors ahead of this earnings season, said Shaon Baqui, research analyst at Janus Henderson. "It hasn't been enough just to put up numbers. You have to really shock-and-awe."
Chip companies have recovered some from investors' initial disappointment. The semiconductor index added 6.6% Tuesday and has staged a 17% comeback from the recent selloff's bottom last Wednesday, led by SK Hynix.
Now bulls are hoping for more results that extend the momentum, with several more big chip makers, including Sandisk, set to report in coming days.
The recent selloff has coincided with an apparent reduction in some of the frothy, leverage-fueled trading that helped push AI-related stocks higher for much of this year. Last week, individual investors net sold more than $6 billion worth of technology stocks, the most in any week since at least 2019, according to data from market maker Citadel Securities.
Meanwhile, a large hedge fund that borrowed money to bet on chip companies and other AI-related stocks was forced to liquidate much of its portfolio to pay lenders who asked for their money back in the face of falling stock prices. Many of the fund's biggest holdings bounced back after reports that the portfolio had been sold to another, larger firm last week.
Several indicators show that stock-market leverage has dropped meaningfully from the end of June as investors reduced their risk. That leaves chip stocks in a healthier position to rally, with positioning less extreme than before, analysts say.
Analyst estimates for the sector's full-year revenue and profit growth have plateaued at a very high level over the past month, but there haven't been any other notable declines in chip-stock fundamentals, Ed Yardeni, president of Yardeni Research, wrote to clients on Thursday.
ON Semiconductor reported a profit beat after the close on Monday, but shares traded little changed in the following session.
Sandisk, reporting Wednesday, is expected to post a profit of $5.26 billion, a year after taking a $23 million quarterly loss. Investors will need to wait until the end of the month for results from Nvidia, the world's most valuable company.
Meanwhile, the combination of huge earnings increases and recent stock declines mean several big chip manufacturers look downright cheap by traditional valuation metrics. Memory-chip manufacturers Micron Technology and Sandisk are trading at six and seven times their projected earnings over the next 12 months, respectively, compared with 20 times for the S&P 500.
"Valuations have dropped to pretty attractive levels. Nvidia and TSMC now trade at a discount to the S&P 500 despite being the most critical businesses to the AI build-out," Baqui said.
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