SK Hynix Fair Value at 910,000 Won? Is a New Inflection Point Coming for the Semiconductor Industry?

I read an interesting article this morning. It was about an analysis suggesting SK Hynix’s fair value is 910,000 won. Considering the current stock price is in the late 200,000 won range, this represents more than a threefold increase. At first, I thought, “Isn’t this another excessive forecast?” But upon closer examination, I found it wasn’t just a simple stock price prediction, but an analysis reflecting structural changes across the semiconductor industry.

According to the article, this analysis is based on the premise that SK Hynix could receive valuations similar to Micron’s level through issuing ADRs (American Depositary Receipts). Currently, Micron’s price-to-earnings ratio (PER) is around 25x, while SK Hynix trades at around 10x. Why is there such a difference despite both being memory semiconductor companies? It’s due to differences in market accessibility and investor perception.

In fact, this valuation gap has been a long-standing issue for Korean semiconductor companies. While they rank first globally in terms of technology and market share, their stock market valuations have been relatively undervalued. Even Samsung Electronics trades at significantly lower PERs compared to Apple or TSMC. Personally, I’ve always considered this the biggest Achilles’ heel of Korean companies.

But why is such an analysis emerging now? The key is the explosive growth of the AI semiconductor market. SK Hynix currently holds an overwhelming first place in the high bandwidth memory (HBM) market used for AI training and inference, with a market share of over 60%. Most of the HBM used in NVIDIA’s H100 and A100 AI chips are SK Hynix products. This means they’ve transcended being a simple memory supplier to become a core partner in the AI ecosystem.

Memory Semiconductors in the AI Era: The Rules of the Game Are Changing

The growth trajectory of the HBM market is truly remarkable. The market, which was about $3 billion in 2023, is projected to exceed $30 billion by 2030. That’s an annual growth rate of over 40%. Compared to the single-digit growth rate of the traditional DRAM market, this is a completely different dimension. If SK Hynix maintains its dominant position in this market, both revenue and profitability could show growth on a completely different scale than before.

Looking at SK Hynix’s recent performance, we can see that this change has already begun. As of Q3 2024, HBM sales account for more than 30% of total revenue, and the operating margin has exceeded 20%. Considering that the operating margin for traditional commodity memory business was around 5-10%, this is a tremendous change. More importantly, the proportion of such high-profit products continues to increase.

But there’s another aspect worth noting here: technological barriers to entry. Unlike traditional DRAM, HBM requires extremely complex 3D stacking technology. Memory chips must be stacked vertically up to 8 or 12 layers while solving heat and signal interference issues. Only a few companies worldwide can commercialize this technology: SK Hynix, Samsung Electronics, and Micron. Among these, SK Hynix is considered to be technologically ahead according to industry assessments.

The comparison with Micron is also interesting. Micron’s market capitalization is currently around $120 billion, while SK Hynix is about $60 billion. In terms of market share, SK Hynix has 28% in DRAM compared to Micron’s 23%, and in NAND, SK Hynix actually leads in some areas. Yet the market cap is half the size. If this gap were to close, the target price of 910,000 won seems quite feasible.

ADR Issuance: Strategic Significance Beyond Simple Fundraising

The ADR issuance mentioned in the article is not just a simple fundraising tool. It’s a strategic instrument that provides direct investment channels to global investors and raises awareness in the US market. TSMC’s success in receiving high valuations in the US market through ADRs is a good example. There’s a considerable premium between TSMC’s Taiwan-listed shares and its US ADRs.

More importantly, US investors’ interest in AI semiconductors is exploding. With NVIDIA’s market cap hovering around $3 trillion, interest in SK Hynix as a core partner in the AI ecosystem is naturally bound to increase. Particularly since many US investors find it difficult to invest directly in the Korean stock market, significant capital inflow is expected once ADRs are available.

Of course, there are risks. The biggest concern is the AI bubble debate. There are continuous criticisms that current valuations of AI-related companies are excessively high. If AI market growth slows more than expected or competition intensifies, the HBM market could also be affected. Samsung Electronics has indeed started catching up in the HBM field, and Chinese companies are also accelerating their own technology development.

Another variable is geopolitical risk. As US-China tech competition intensifies, the entire semiconductor industry is exposed to uncertainty. China is one of SK Hynix’s major customers, and there’s a possibility of strengthened regulations in the future. Such external factors cannot be overlooked in their impact on stock prices.

Nevertheless, I personally remain positive about SK Hynix’s medium to long-term outlook. This is because AI is not a temporary trend but a paradigm shift across industries, and memory semiconductors are at the core of this change. Just as the mobile DRAM market exploded when smartphones emerged, HBM seems likely to play that role in the AI era.

What’s interesting is the ripple effect this change could have on the entire Korean semiconductor industry. If SK Hynix receives high valuations in the global market, the valuations of other Korean semiconductor companies, including Samsung Electronics, are likely to rise as well. This could be called a “Korea discount” resolution effect. This isn’t just about individual companies but could lead to a change in the status of the entire Korean economy.

Whether the target price of 910,000 won will materialize remains to be seen, but I think it’s quite convincing in terms of direction. Several factors are aligning: the advent of the AI era, HBM market growth, and the resolution of global valuation gaps. Of course, investment should always be cautious, but it would also be regrettable to miss such structural changes.

This article was written after reading “Micron-level if ADR issued”…SK Hynix fair value of 910,000 won emerges < Securities < Article – Yonhap Infomax and adding personal opinions and analysis.

Disclaimer: This blog is not a news outlet, and the content written represents the author’s personal views. Investment decisions are the responsibility of the investor, and we assume no responsibility for investment losses based on the content of this article.