- UBS has given SK Hynix ADR a buy rating and set a target price of $204, believing the market underestimates the structural profitability improvement in the memory industry driven by Agentic AI.
- Due to the impact of the proportion of mobile products and the shipment pace of HBM4, the average price of DRAM in the second quarter increased by 30% quarter-on-quarter, and institutions expect the bit demand growth rate to accelerate further to 36% by 2027.
- Management has raised the capital expenditure guidance to over 40 trillion Korean won, and 10 long-term agreements have already been finalized, which is expected to secure stronger free cash flow and gross margin prospects in the long run.
Revaluation of Stock Price and Long-term Return Expectations
UBS pointed out that SK Hynix ADR has retreated 33% from its previous high, and the current stock price implies a long-term equity return rate equivalent to only 17.7% of the pre-AI era average. However, considering the structural benefits of AI storage chips, analysts have significantly raised the average return rate from 2027 to 2031 to 40.2%. If the market gradually recognizes this profit growth curve, capital flows will shift from defensive allocations to the repricing of high-prosperity semiconductor giants.
Acceleration of Bit Demand Driven by Agentic AI
With the rapid rise of Agentic AI, the supply and demand pattern of the memory industry has undergone profound changes, and bit demand growth is accelerating. It is expected that the year-on-year growth rate of DRAM bit demand will jump from 22% in 2026 to 36% in 2027, and NAND growth will also increase to 23%. This strong downstream demand is driving a rebound in risk appetite in the semiconductor sector, which is expected to lead to an upward shift in the overall valuation center of memory chips.
Long-term Agreements Limit Short-term Price Increases
The company's progress in signing long-term agreements in the second quarter was faster than anticipated, with 10 agreements already finalized and more negotiations underway. Although locking in long-term prices may limit spot price increases in the short term, it will effectively smooth out cyclical fluctuations and enhance overall profit margins in the long run. If the proportion of long-term contracts remains high, investors' concerns about the tail-end risks of the memory industry's cycles will be significantly reduced.
Capital Expenditure Expansion and Advanced Product Volume
SK Hynix (000660:KS) management has raised capital expenditure guidance to over 40 trillion Korean won, demonstrating confidence in high-end capacity expansion. The average selling price of DRAM in the second quarter increased by 30% quarter-on-quarter, and the HBM4 shipments initiated at the end of the quarter will become the core profit growth driver moving forward. Although the increase in capital expenditure strengthens short-term capital consumption, it will also solidify the company's competitive barriers in the next-generation high-bandwidth storage market.
