A New Player on Wall Street: SK Hynix Stock Changes the Game

The growing demand for memory chips for artificial intelligence applications has created a new opportunity for investors in the United States. The Korean company SK Hynix, one of the world's three leading memory chip manufacturers, has recently begun trading on NASDAQ. Until now, the major competitor Micron Technology was the primary way for American investors to gain exposure to the global chip shortage, but the entry of the Korean competitor into the U.S. market changes the landscape and offers investors a new, intriguing choice.

The Giant Agreement with Nvidia and Profit Multiples

Although both companies show similar growth potential and profitability, there is a significant gap in their valuation. Micron trades at a multiple of about 5.7 on expected earnings for the 2027 fiscal year, while SK Hynix trades at an even lower multiple of just 5. This gap is particularly striking given that the Korean company holds a significant advantage in the production of high-bandwidth memory chips, known as HBM, and enjoys an especially close relationship with the artificial intelligence market leader, Nvidia.

The close connection with Nvidia is reflected in a multi-year agreement to supply advanced memory chips, which reportedly could reach a value of about 500 billion dollars. SK Hynix management noted that despite weaker-than-expected sales of next-generation chips in the second quarter, it expects significant acceleration in the second half of the year, which is expected to boost sales and the average selling price of the chips.

Is Stability Worth the Profit Limitation?

However, these long-term agreements come at a price, as locking in prices with Nvidia could limit SK Hynix's profit potential at the peak of the demand cycle. This is a trade-off that both chip manufacturers have been making recently: sacrificing some immediate profits in exchange for stability and reduced future risks. Micron has also signed similar agreements, which currently represent about a fifth of its revenues from DRAM chips and a third of its revenues from NAND chips, aiming to ensure more constant revenue streams.

Analysts predict that both companies will reach their peak profits in 2028. However, while Micron trades at a multiple of 5.5 on that year's earnings, SK Hynix trades at a multiple of just 3.5. This combination of low valuation and a strong position alongside Nvidia makes the Korean company, in the opinion of analysts, the more attractive way to invest in the current growth cycle of the chip industry.