SK Hynix Earnings: We Raise Fair Value Estimate on Strong AI Memory Demand

Key Morningstar Metrics for SK Hynix

• Fair Value Estimate
  : $164
• Morningstar Rating
  : ★★★
• Morningstar Economic Moat Rating
  : None
• Morningstar Uncertainty Rating
  : Very High

What We Thought of SK Hynix’s Earnings

SK Hynix’s SKHY September-quarter revenue of KRW 105 trillion and operating margin of 80% grew 32% and 330 basis points sequentially. Shares rose 9% after the company’s earnings call.

Why it matters: Results were slightly ahead of our estimates, as high-bandwidth memory prices exceeded our forecasts by 10%, reflecting an accelerated HBM4 ramp. However, near-term earnings gains are broadly offset by rising risks from 2029 as Chinese entrants catch up faster than expected.

• The accelerated ramp likely improved SK Hynix’s mix, as HBM4 is priced 50% higher than HBM3E by our estimates. With 2027 HBM negotiations pointing toward the doubling of prices, we are now more positive on near-term DRAM pricing and earnings.
• SK Hynix noted that DRAM capacity was sold out through 2029. That said, we remain skeptical about structurally higher DRAM prices. China’s aggressive capacity expansion is raising oversupply risk, while long-term agreements have yet to prove resilient in a downturn.

The bottom line: We keep our fair value estimate for SK Hynix at KRW 2,200,000 but raise our fair value estimate for ADRs by 8% to $164 on a stronger won. Korean shares appear undervalued both against our fair value estimate and relative to US peers.

• We raise our 2026-28 revenue and operating margins by 10%-28% and 90-131 basis points, respectively, on stronger near-term HBM prices but lower our midcycle operating margin by 137 basis points on higher memory commoditization risk.
• In addition to China’s capacity expansion, our concerns about commoditization stem from earlier-than-expected production of LPDDR6 by CXMT and YMTC’s rapid market share gain, implying that the gap between Chinese entrants and memory leaders is closing faster than expected.

Key stats: SK Hynix announced KRW 100 trillion in shareholder returns in 2026, funded by earnings and gains from its Kioxia stake. We view these shareholder returns positively.