SK Hynix delivered on third-quarter results - but the outlook is what really mattered to Wall Street and the AI trade

By Steve Goldstein

Korean memory-chip maker records 80% operating margin in the third quarter

SK Hynix's third-quarter results beat Wall Street estimates.

SK Hynix, one of the three major memory-chip makers whose profits have soared with the artificial-intelligence services build-out, said Wednesday that a shortage of supplies will last through 2030 after a record third quarter for the company.

The Icheon, South Korean-based company, in its earnings release, mentioned a "virtuous cycle," in which AI-driven productivity gains and new revenue generation lead to greater AI adoption, and that more enterprise and national-level initiatives will lead to a further build-out.

SK Hynix also pointed to physical AI, such as autonomous driving and robotics, boosting demand, but the "technical difficulty of leading-edge processes and the long lead time required to build new production facilities" will keep supply constrained.

SK Hynix's profit more than tripled, to 39.78 trillion Korean won ($29.7 billion), as revenue more than quadrupled to 104.62 trillion won.

Its operating margin rose 3 percentage points sequentially to 80%, a company record.

The blowout earnings - operating margin came in ahead of the 78.4% consensus and revenue was 7% above Wall Street estimates - were due both to surging prices and increased sales of higher-end products.

The average selling price of DRAM chips rose by a "high-20%" compared with the second quarter, as the average price of NAND chips rose by "mid-20%," the company said.

Like its rivals, SK Hynix has been agreeing to long-term agreements to lock in high memory-chip prices. It said more than 50% of 2027 and 2028 production is covered by long-term contracts.

SK Hynix said approximately 100 trillion won in shareholder returns will be executed this year, with dividends accounting for at least 30 trillion won and share buybacks of at least 60 trillion won, having already completed 40 trillion won in buybacks.

SK Hynix shares (KR:000660) jumped 11% in Seoul trade, as rival Samsung Electronics (KR:005930) saw its shares jump 9%.

The SK Hynix American depository receipts (SKHY), which trade at a roughly 40% premium to the underlying Korean shares, rose 7% in premarket trade.

Micron Technology (MU) shares rose 3%.

JPMorgan analysts led by Jay Kwon said the third-quarter results were a "clear beat" to even the upper end of institutional investor expectations and also show management's conviction in a "higher-for-longer" memory upcycle view.

Cantor analyst C.J. Muse called it a "solid report," but said the key to the stock is the company's strong outlook. "Bigger picture, management offered a very bullish outlook for the sustainability of AI infrastructure spending, supporting a structural memory supply/demand imbalance through CY30," he said.

The question hanging over both SK Hynix and rivals is whether there will be overproduction, as in past cycles. SK Hynix executives on a conference call said that even as it builds more fabs, the rising share of high-performance products like HBM chips demands more resources.

Cantor's Muse said the answer to those fears is that the current AI cycle is elongated and durable, gross margins will remain elevated, and equipment lead times will extend to one to two years will limit the capacity added.

According to FactSet, SK Hynix trades on just 3.1 times projected 2027 earnings.

-Steve Goldstein

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10-28-26 0834ET