SK Hynix Stock Plummets 14.57%, KB Securities Raises Target Price

SK Hynix's stock price fell 14.57% in a single day on the 2nd, marking the largest decline since 2008. This is attributed to a combination of profit-taking on stocks that had risen on AI-related expectations and forecasts of memory semiconductor supply shortages. SK Hynix closed at 2,187,000 won on the 2nd, down 373,000 won (14.57%). This represents the steepest drop in approximately 17 years and 7 months, since November 20, 2008 (-14.91%). Foreign investors were net sellers, offloading 1.668 trillion won worth of shares that day.

KB Securities raised SK Hynix's target price to 4.2 million won from its previous 3.8 million won on the 3rd. This price is 92.0% higher than the previous day's closing price of 2,187,000 won. KB Securities cited memory supply shortages, projecting that while the global AI investment scale will increase from $800 billion in 2026 to $1.5 trillion in 2028, DRAM and NAND wafer production capacity growth will be limited to 7% and 4% respectively by 2027, while demand is expected to grow by 17% and 19%. KB Securities suggested cloud computing resource rental as a monetization model for tech giants to recoup AI investment costs.

Reports that Meta may enter the cloud business by lending out excess AI computing resources have raised concerns about a slowdown in memory demand due to the emergence of idle capacity in private data centers. SpaceX has secured computing resource supply contracts worth $1.25 billion per month with Anthropic and $920 million per month with Google, totaling $2.17 billion per month. However, these contracts include clauses allowing Google to terminate the agreement immediately or receive price reductions if SpaceX fails to deliver the promised GPU volumes by the deadline. Both contracts with Anthropic and Google can be terminated with 90 days' notice, making them unlikely to guarantee long-term cash flow.

The debate surrounding SK Hynix's stock price hinges on whether two premises hold true simultaneously. The first is the continuation of price increases due to memory supply shortages, and the second is the ability of tech giants to continue data center investments by recovering AI investment costs through sales and cash. Increased AI service usage and the activation of resource rental businesses could secure capital for tech giants' facility investments, consequently leading to positive prospects for memory demand and semiconductor companies' earnings. However, if monetization speed fails to keep pace with rising investment costs, tech giants may scale back facility investments or delay data center construction schedules, leading to a downgrade in memory demand forecasts and semiconductor company earnings estimates.

While the stock reacted immediately to concerns about AI investment excess, KB Securities has taken a comprehensive view reflecting the projected supply shortage extending to 2028 and the potential for AI monetization. KB Securities stated that to justify its target price of 4.2 million won, the flow of AI investments translating into actual service revenue and profits must be confirmed. The future direction of the stock price is likely to depend more on the actual profitability of AI businesses and data center utilization rates rather than the scale of tech giants' facility investments, the firm added.