SK Hynix 56% HBM share narrows valuation gap with Micron

SK Hynix Inc. has historically traded at a discount to Micron Technology Inc., but the Korean memory maker's $26.5 billion US listing and dominant position in high-bandwidth memory are narrowing that gap as AI data center demand reshapes the competitive dynamics.

"The memory industry is structurally different from prior cycles because customers are signing five-year strategic agreements with large upfront payments," Sumit Sadana, chief business officer at Micron, said during the company's recent earnings call.

SK Hynix controls 56.4% of the HBM market, the specialized memory that works alongside Nvidia Corp.'s AI accelerators. Its American depositary receipts surged 13% to $168 in their July 10 debut, the largest first-time share sale by a foreign company in US history. The stock has since retreated, falling 10% in Seoul trading Monday on profit-taking and concerns that earnings expectations have become too stretched.

The narrowing discount matters because it signals that global investors are re-rating SK Hynix as a structural AI beneficiary rather than a cyclical memory play. If sustained, the re-rating could unlock billions in additional capital inflows and pressure Micron to justify its premium valuation with faster HBM market share gains.

The company's Korea-listed shares have surged more than 25-fold since the end of 2022 as the AI boom drove record profits. The US offering was more than seven times oversubscribed, Bloomberg News reported, reflecting strong demand from global investors seeking exposure to the AI memory supply chain.

Yet the euphoria has created elevated expectations. Korea Investment & Securities projects SK Hynix's operating profit for the latest quarter may trail consensus by 8%, citing slower price increases for HBM relative to conventional memory chips. The stock's ascent has been fueled partly by retail frenzy and leveraged positions, making it susceptible to sharp reversals.

Competitive dynamics

The memory industry has historically been defined by boom-and-bust cycles, with prices swinging wildly based on supply and demand. This cycle may be different. Micron has begun signing customers to five-year strategic agreements that include large upfront cash payments, a departure from the traditional one-year contracts. The shift suggests that AI data center operators — including hyperscalers such as Microsoft Corp. and Amazon.com Inc. — are willing to lock in supply to avoid shortages.

SK Hynix plans to use the $26.5 billion raised in its IPO to build new manufacturing facilities, though construction takes years. The supply constraints have already affected consumer electronics, forcing companies like Microsoft and Apple Inc. to raise prices on laptops and tablets.

The three major HBM producers — SK Hynix, Micron, and Samsung Electronics Co. — are racing to expand capacity. SK Hynix's 56.4% market share gives it a significant lead, but Micron has signaled aggressive expansion plans, and Samsung is investing heavily in its own HBM technology. The outcome of this race will determine which companies capture the most value from the AI memory boom.

SK Hynix's US-traded shares closed Friday at a roughly 15% premium to the Seoul-listed stock, Bloomberg-compiled data shows. The premium reflects the broader investor base and liquidity of US markets, but also suggests that the valuation re-rating is still in its early stages. For investors, the key question is whether SK Hynix can maintain its HBM market share lead as Micron and Samsung ramp production. If it does, the historical discount to Micron may continue to compress. If not, the premium could evaporate quickly.

This article is for informational purposes only and does not constitute investment advice.