Thoughts on SK Hynix:
Central Question: What is behind the recent breakout, despite more than a month of range bound price action and no change in the geopolitical backdrop?
SK Hynix (KRX: 000660) has been on a tear, breaking through $1.1 million KRW on April 14th and rising to as much as $1.8 million KRW as of May 11th. The last time the stock reached $1.1 million KRW was in late February. Interestingly, with no clear timeline and resolution to the US-Israel war in Iran, investors pushed the stock up 76% within a month.
Before the Middle East conflict, on February 28th, 2026, SK Hynix had just hit its previous peak at $1.1 million KRW. However, news of the conflict sent ripples through investor sentiment forcing a strong move down that led to the eventual 26% drawdown over the following 2 week period. SK Hynix continued to trade range bound for 47 days, between $800,000 KRW and $1.1 million KRW, before exploding through the $1.1 million KRW resistance level.
Before exploring the breakout, it may be helpful to review the initial drawdown from the $1.1 million KRW level that was reached prior to the start of the war in Iran:
For starters, as we entered the war, the market pivoted toward a risk off regime. Investors start offloading from high growth tech and the like, an easy decision for investors especially considering lingering concerns surrounding the sustainability of the massive CapEx and R&D commitments to everything from data centers and physical infrastructure to advanced AI chips. Most importantly, however, will they translate over to tangible earnings and profits?
Secondly, with the new wartime status quo, investment managers were found shoring up liquidity to cover margin calls in some more highly leveraged positions within the portfolio, whether that be leveraged exposure to tech or leveraged ETFs, things of that sort.
Thirdly, consider the impact of supply chain disruptions to memory companies like SK Hynix and Samsung (KRX: 005930). Specifically, conflict in the Middle East and closure of the Strait of Hormuz impacts reliable supply of critical minerals like Helium and Bromine. Helium is a gas that plays a vital role in cooling equipment and wafer etching procedures. The regional instability threatened Qatari production, which supplies approximately one-third of global Helium. Similarly, the steady supply of Bromine, another critical gas used for etching structures on silicon wafers with extreme precision, also added to growing uncertainty in the sector. All in all, these raw materials are critical to the production of SK Hynix products and as the industry moves toward finer and more complex circuit nodes (sub 20nm), the more in demand and irreplaceable these materials become.
Finally, it may be helpful to recognize the degree of South Korean reliance on oil imports through the Strait of Hormuz. Roughly 70% of South Korean crude oil imports passes through the waterway and as the most crude oil dependent OECD economy, this high-volume reliance for its massive energy-intensive industrial sector creates critical national security risk.
With that said, let’s dive into some of the key catalysts that have likely contributed to the recent rally:
Foundationally, note that SK Hynix is the undisputed leader in the HBM (High Bandwidth Memory) market, holding roughly 55-60% market share - especially in HBM3E, an extended version of the HBM3 standard designed to provide faster data processing speeds, higher capacity and improved power efficiency for AI workloads. This leadership is largely thanks to the close engineering partnership with Nvidia, serving as their primary supplier for flagship AI GPUs like the H100, H200, etc. HBM is critical to AI due to its high bandwidth and power efficiency compared to standard DRAM (Dynamic Random Access Memory) primarily for its role in training and inferencing of massive models. HBM supply remains constrained and SK Hynix’s HBM capacity for 2025-2026 is already largely sold out or pre-booked in advance, providing SK Hynix with unique pricing power dynamics.
Thematically, we continue to see explosive AI demand and hyperscalar spending from cloud service providers operating enormous data centers to provide scalable, on-demand compute and storage resources. The Magnificent 7 continues to ramp up massive AI infrastructure investments, driving CapEx up and fueling stronger guidance. GPU spending and projected demand typically moves in tandem with demand for high-end memory (HBM), especially considering every new AI server/cluster needs significantly more HBM than its previous generation - SK Hynix is in position to benefit more than its peers because its products are heavily weighted toward high-value AI applications, unlike its more diversified peers.
Now taking a look at SK Hynix Q1 2026 financial results, arguably the primary catalyst, we get a clearer explanation of the recent jump. Back in late April 2026, SK Hynix reported record breaking Q1 financial results:
- Revenue came in at $52.58 trillion KRW (~$35.5 billion USD), up 198% YoY and crossing the $50 trillion WON quarterly revenue threshold for the first time ever, signaling strong core business performance and strong demand
- Operating Profit came in at $37.61 trillion KRW (~$25.2 billion USD), up 405% YoY (a 5x increase) and nearly doubled on a QoQ basis; the core business continues to grow, however could serve as a double-edged sword by inflating expectations for future earnings cycles
- Operating Margin (profit generated from core business for every dollar of revenue earned) came in at 72%, an all time high (higher than Nvidia or TSMC in recent periods)
- Net Profit came in at $40.35 trillion KRW (~$27 billion USD), up ~398% YoY
- Management highlighted that customer demand for HBM far exceeds production capacity for the next 3 years, and plans to accelerate HBM4 development while HBM3R remains dominant
As far as the balance sheet is concerned:
- Cash and Cash Equivalents rose sharply to $54.3 trillion KRW (~$36.4 billion USD), which was up $19.4 trillion KRW on a QoQ basis; looking into historical figures, for the majority of 2024 Cash and Cash Equivalents hovered around the $10 to 15 trillion KRW level, but in 2025 it jumped as high as $34.9 trillion KRW in Q4, and is now jumping to $54.3 trillion KRW in Q1 of 2026; this is a clear breakout in the pace of growth in the company’s cash balance, which can serve to:
- Increase commitment to the R&D arms race, especially amidst the jump from HBM3 to HBM4 and to sustain the degree of CapEx through upcoming cycles
- Secure supply chain control and secure long term supply agreements for critical minerals and other bottleneck components (although there is broader issue surrounding supply crunch for critical minerals and domination by China)
- Serve as a cushion in case the market narrative reverses and things take a turn for the worse
- Readily pursue and engage in strategic M&A or partnerships
The bottom line is that the Q1 results were not just good, they were historic and removed any lingering doubts about AI demand sustainability, reinforcing and justifying the massive CapEx spending trend in recent quarter(s)
It’s also important to note that Samsung has been struggling with labor issues (April to May 2026) that is boosting relative sentiment for SK Hynix, despite its already leading position. The labor union is demanding a larger share of profits as bonuses, threatening an 18 day strike, citing pay gaps with SK Hynix. Samsung and its labor union failed to reach a last minute agreement, which heightens the risk of a strike that may cause production disruptions that would tighten memory supply even further, shifting market momentum to SK Hynix and Micron.