[This Week's Industry Insight] Despite Nvidia's Adjustment... SK Hynix Maintains Its Competitiveness as the 'Absolute Leader in HBM'

NVIDIA Plunge Draws Attention to SK Hynix Stock Trend
"Competitor Still Supplying Significant New Products... HBM Competitiveness Maintained This Year"
"Sales and Operating Profit Expected to Increase YoY... Forecasted Return to Profitability"

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As the stock price of global AI semiconductor leader Nvidia plummeted, market attention has turned to SK Hynix, considered a so-called 'Nvidia beneficiary stock.' In the rapidly expanding AI semiconductor market, SK Hynix, which has virtually monopolized the supply of high-bandwidth memory (HBM) to Nvidia, has seen its stock price rise by more than 60% this year alone. In the past week, four reports on SK Hynix, including one ranked in the top three, were included in the list of the top 30 most viewed company reports by the financial information firm FnGuide.

"HBM Demand Continues to Grow with AI Market Expansion"

Currently, SK Hynix's main products are volatile memory such as DRAM and non-volatile memory such as NAND flash memory. Memory semiconductors function to store and retain information and are generally classified as 'volatile' and 'non-volatile.' Volatile memory products lose information when power is cut off, whereas non-volatile products retain stored information even when power is off.

The counterattack began in earnest this year. Last year, the memory market experienced a downturn amid high interest rates and recession concerns worldwide, but the IT demand gradually recovered in the second half of last year, leading to an improvement in the business environment.

In particular, the rapid growth of the global AI market drove this change. SK Hynix is virtually the sole supplier of HBM3 to Nvidia, which dominates 80% of the global AI chip market. Along with products for AI servers such as HBM and high-capacity Double Data Rate (DDR)5, there was also notable growth in mobile memory demand from customers in the Greater China region. Consequently, from the fourth quarter of last year, NAND prices also began to rise, led by DRAM.

As a result, SK Hynix showed a remarkable stock price increase in the domestic stock market during the first half of this year. The closing price on March 25 was 169,400 KRW, and about three months later, on the 20th of this month, it closed at 237,500 KRW. The key was securing a competitive edge over rivals in the supply competition for HBM, which is essential in AI chip development and production. SK Hynix was also the first in the world to develop HBM in 2013.

Corporate performance is also improving significantly. Last year, due to the sluggish market, it recorded an operating loss of about 7.7 trillion KRW. Analyzing six securities reports released in the past week, the average forecast for SK Hynix's sales and operating profit this year are 68.38 trillion KRW and 22.65 trillion KRW, respectively.

Shin Seok-han, a researcher at Daishin Securities, said, "With the recovery of the NAND market, the operating profit margin is estimated to have improved by 2.6 percentage points from the previous quarter to 15.6%." He explained, "DRAM's performance is reflecting the impact of shipments of 8-stack HBM3E that began in March. Leading with HBM3E(8-stack), HBM sales are expected to continue growing next year," adding, "AI benefits are spreading to NAND as well. Demand for high-capacity quad-level cell (QLC) enterprise SSDs (eSSD) installed in AI servers and storage is increasing, and the profitability improvement of subsidiary Solidigm, which has strengths in eSSD solutions, positively affected NAND performance."

Park Sang-wook, a researcher at Shin Young Securities, noted, "From the second quarter of this year, HBM3E sales have fully started, leading to a significant rise in DRAM ASP. NAND demand is increasing for high-capacity eSSD in AI servers and data centers." He added, "We have raised SK Hynix's sales and operating profit forecasts for this year by 3.4% and 26.7%, respectively, to 68.7 trillion KRW and 22.7 trillion KRW. This is due to improved profitability from increased HBM yield and Solidigm's return to profitability."

"Shaken by Nvidia's Sharp Decline... But Equipped with Mid-to-Long-Term Competitiveness"

The issue is that Nvidia has entered a correction phase. On the 24th (local time), according to the New York Stock Exchange, Nvidia's stock price traded at $119.42 (165,754 KRW), down 5.65% from the previous trading day. After reaching an all-time high closing price of $135.58 on the 18th, the stock has fallen for three consecutive trading days. During this period, the stock price plunged more than 10%. The market capitalization, which had exceeded $3 trillion, dropped below $3 trillion to $2.937 trillion. Its ranking also fell from second to third place.

The decline in Nvidia's stock price is analyzed as a temporary correction due to profit-taking after a surge, but some predict the downtrend may persist long-term. Consequently, domestic semiconductor stocks also showed a sharp decline on the 24th. SK Hynix's stock price fell to 223,000 KRW that day.

However, the securities industry values SK Hynix's competitiveness more than concerns about the correction. This is because SK Hynix's competitive edge in the HBM market is expected to continue due to competitors' poor HBM performance.

SK Hynix is strengthening its market dominance and relationship with Nvidia by advancing the mass production schedule of next-generation HBM. HBM4 is under development with a target mass production in 2025, and HBM4E in 2026. The production schedule has been advanced by about a year. Nvidia's AI accelerator release cycle shortening from two years to one year also influenced this. HBM4 is expected to increase bandwidth by 40% compared to HBM3E while reducing power consumption to about 70%.

Additionally, HBM4, which introduces the concept of custom HBM, is preparing collaboration with Taiwan's TSMC, aiming for late next year. In April, SK Hynix signed a memorandum of understanding (MOU) with TSMC to strengthen HBM4 development and advanced packaging technology capabilities. Custom HBM is characterized by a customer-tailored base die or logic die as the first layer of HBM. Multiple DRAM layers are stacked on top and vertically connected using through-silicon via (TSV) technology. The first layer base die connects to the AI computing device and controls the HBM.

Kim Kwang-jin, a researcher at Hanwha Investment & Securities, said, "The market penetration of HBM3E by latecomers is not progressing smoothly as expected," and assessed, "SK Hynix's competitive advantage as the leading HBM supplier will continue for the time being." He also analyzed, "Maintaining a virtual monopoly in the HBM3E market this year, SK Hynix will fully benefit from price increases due to generational transition," adding, "It will be difficult for latecomers to narrow the technological gap."

Go Young-min, a researcher at Daol Investment & Securities, added, "In the second quarter of this year, shipments of HBM and high-capacity eSSD are still rapidly expanding compared to competitors," and said, "Both DRAM and NAND show growth trends. In the long-term boom cycle continuing until next year, maximizing performance leverage through product synergy is highly likely."