Morning Chronicle - AI chip giant SK hynix says quarterly operating profit soars 630%

Operating profit for the July-September period was 83.33 trillion won ($62.8 billion), the company said.

The firm's July-September net profit jumped 215.7 percent from last year to 39.77 trillion won, while sales reached 104.61 trillion won.

The memory chip giant said it had posted record revenue and operating profit for six straight quarters since the second quarter of last year.

But the earnings fell behind market expectations. The average estimate of net profit by analysts stood at 59.67 trillion won, according to South Korea's Yonhap news agency, citing its own data firm.

"SK hynix analyzed that a virtuous cycle has taken hold in which AI-driven productivity gains and new revenue generation in areas such as software development, customer service, and search lead to greater AI adoption," the chipmaker said in a statement.

SK hynix is a specialist supplier of high-bandwidth memory chips to US industry behemoth Nvidia, and a pillar of South Korea's tech-led economy.

The global race to build AI data centres has transformed the company's fortunes, despite concerns that the sector may be overvalued.

In high demand are key chips known as DRAM and storage components called NAND, which are found in everyday gadgets but are also needed to help process the vast amounts of data crunched by generative AI.

Analysts say soaring DRAM prices amid a global shortage and stronger sales of high-margin high-bandwidth memory (HBM) have driven earnings, while the AI boom has also lifted prices and shipments of conventional NAND chips.

- Not yet peaked -

Long-term agreements established with major customers, including Nvidia, signal "another phase of price increase across both conventional DRAM, NAND and HBM", MS Hwang, an analyst at market research firm Counterpoint, told AFP.

"This indicates that quarterly earnings have not yet reached their peak and that the upward trajectory will likely sustain at least through 2027."

But the company's shares have been under pressure since June, as investors largely shrugged off record quarterly earnings that had already been priced in.

Going into 2027, "weaker AI spending, increased competition, and the company's own capacity expansion are all factors that dictate price volatility," analyst Hwang said.

"The single most severe threat would be a scenario reminiscent of 2018, where cloud service providers simultaneously pull back on their order volumes."

Record profits from booming AI memory demand have fuelled investor calls for the company to return more cash through dividends or buybacks.

Those calls have grown since its shares retreated from record highs in June amid concerns over the outlook for US tech firms' AI spending.

SK hynix announced an additional plan to return 60 trillion won to shareholders on Wednesday, following the completion of a 40 trillion-won shareholder return programme.

"The company's stock has fallen nearly 60 percent from its peak (in June), and I think that is the main reason the company needs to focus on winning back shareholders", Kim Dae-jong, a professor of business administration at Sejong University, told AFP.

"Stock prices tend to anticipate future conditions rather than simply reflect current earnings," he said.

"The concern is that the extraordinary level of earnings the company is generating today may not be sustainable one or two years from now, and I believe that concern is already being reflected in the share price."

S.Jones--MC-UK