SK Hynix plunges after Nasdaq debut amid diminishing earnings optimism

By Heekyong Yang and Gregor Stuart Hunter

SEOUL, July 13 (Reuters) - SK Hynix shares fell more than 15% in Seoul on Monday, its biggest one-day decline in nearly two decades, as investors in Seoul cashed out of a scorching share price rally following its Nasdaq debut last week.

The company's U.S.-listed shares dropped 9.2% to $152.50 in premarket trading on Monday after jumping more than 12% in its Nasdaq debut on Friday.

The declines in SK Hynix's shares, alongside those of rival chipmaker Samsung Electronics, contributed to a 9% plunge in South Korea's Kospi, triggering a 20-minute trading halt.

Korean stocks extended losses after trading resumed after President Lee Jae Myung on Monday reiterated that the government would help speed up projects to build chip fabs in investments worth hundreds of billions of dollars, as outlined by Samsung and SK Hynix.

The world's leading AI memory chipmaker, SK Hynix, raised over $26 billion last week selling American Depositary Receipts priced at $149 each, after its Korean shares more than tripled this year. The ADRs opened 14% above the offer price at $170 before ending their first trading day with a 12.8% gain.

"The current memory upcycle is tracking substantially stronger than expected, but our base case continues to assume normalisation in cycle dynamics, limiting upside at current levels," said Lorraine Tan, a director at Morningstar, who values the company at $160 per ADR.

"Despite accelerating artificial intelligence adoption, monetisation remains uncertain and profitability for key players, such as OpenAI, appears to be under pressure," she said. "Funding is also shifting toward debt or equity, raising concerns about the maintainability of current spending levels."

Analysts have said the large-scale investments in Korea had heightened uncertainty over the supply outlook and fuelled concerns that the current period of tight supply could eventually give way to an oversupply cycle.

"Our base case here is the fresh capacity in 2027 and 2028 coming up in earnest will improve supply dynamics, thereby leading to price erosion," said Jing Jie Yu, an equity analyst at Morningstar.

SK Hynix Chief Executive Kwak Noh-jung dismissed concerns about aggressive capacity expansion, telling Reuters that the memory industry is heading for its most severe supply shortage ​in 2027, forecasting that demand will continue to exceed the company's ability to produce memory chips well into the next decade.

SK HYNIX ADR PREMIUM VERSUS LOCAL SHARES

Volatility in SK Hynix shares has surged this year as it has become a target of global investors betting on a sustained boost to profits from a shortage of high-bandwidth memory chips used in AI data centres, with many investors using leveraged exchange-traded funds that have amplified returns and losses.

In Hong Kong, a single-stock ETF tracking SK Hynix offered by fund manager CSOP, which uses leverage to target twice the daily returns of its shares, lost more than a third of its value on Monday, its biggest one-day decline since listing in October.

After the rout in the Seoul market on Monday, SK Hynix's U.S. ADRs, which represent one-tenth of a share and closed at $168 on Friday, were left trading at about a 37% premium to its South Korean share price.

"Companies with both U.S. and home-market listings often trade at a premium in the U.S., benefiting from broader investor access, deeper liquidity and stronger valuation support," said James Ooi, a market strategist at Tiger Brokers in Singapore.

Arbitrage is limited by hurdles in converting Korean shares to ADRs, he added.

Ryu Young-ho, a senior analyst at NH Investment & Securities, said investors were profit-taking after the conclusion of the U.S. listing, while sentiment also suffered from caution with regard to SK Hynix's second-quarter earnings.

He said investors had expected shipments of SK Hynix's HBM4 chips to increase from the second quarter, but that the increase does not appear to have materialised at scale.

Ryu also said investors had moderated earnings expectations because SK Hynix, with its greater exposure to the HBM market than crosstown rival Samsung, was set to benefit less from a recent rise in prices for conventional DRAM chips.

SK Hynix led the market for high-bandwidth memory chips with a 58% revenue share in the first quarter, whereas Samsung and U.S. competitor Micron Technology each held 21%, Counterpoint Research data showed.

HBM chips are primarily used in artificial intelligence systems for customers such as Nvidia and Alphabet's Google.

(Reporting by Heekyong Yang and Gregor Stuart Hunter, Additional reporting by Hyunjoo Jin, Ankur Banerjee and Shashwat Chauhan; Editing by Jacqueline Wong, Christopher Cushing, Michael Perry and Thomas Derpinghaus)