Shares of SK hynix Inc. (KRX:000660) suffered a severe decline on Tuesday, closing at ₩1.55 million in Seoul, a drop of 14.65%. The selloff extended to U.S. markets, where the company's depositary receipts fell 8.99% to $130.17. The rout erased approximately ₩190 trillion in equity value, an amount nearly three times the projected operating profit for the second quarter.
The dramatic valuation loss comes just ahead of the company's scheduled earnings release, which is expected before 09:00 KST on Wednesday. Brokerage estimates anticipate record quarterly revenue of ₩84.1 trillion and operating profit of ₩64.1 trillion, with margins in the 75%–77% range. However, the market's reaction suggests skepticism about the sustainability of the current profit cycle.
Broader Market and Sector Weakness
The decline was not isolated to SK hynix. The KOSPI index fell 10.84%, while Samsung Electronics Co. Ltd. (KRX:005930) dropped approximately 13.4%. In the U.S., Micron Technology Inc. (NASDAQ:MU) declined 8.95%. SK hynix underperformed the KOSPI by 3.81 percentage points and trailed Micron by 5.70 points. The broader weakness in chip stocks was compounded by company-specific concerns.
China Competition and AI Funding Worries
Investor sentiment was dampened by news from China. CXMT Corp. (SHA:688825) saw its shares surge following a strong debut on the Shanghai exchange. Reports about domestic deep-ultraviolet (DUV) lithography tools have raised fears that Chinese memory production capacity could accelerate, potentially pressuring prices in the commodity DRAM market.
Concerns over the sustainability of AI-related capital expenditure also weighed on the stock. Investors are questioning whether spending on data centers will be sufficient to maintain current demand levels for high-bandwidth memory (HBM) and other advanced chips. Matt Simpson, senior analyst at StoneX Group Inc. (NASDAQ:SNEX), described the sentiment as being at the "despair part of the selloff."
Competitive Landscape and HBM Outlook
Despite the near-term headwinds, the competitive dynamics remain nuanced. Cameron Systermans at Mercer Investments noted that CXMT poses a risk in commodity DRAM but still lags Korean rivals by several years in the high-bandwidth memory segment. SK hynix currently supplies HBM to NVIDIA Corp. (NASDAQ:NVDA), positioning it at the center of the AI infrastructure buildout.
Short-term fundamentals remain robust. Fourteen Korean securities firms project second-quarter sales of ₩84.1 trillion and operating profit of ₩64.1 trillion, both record levels. According to KB Securities analyst Kim Dong-won, sales to global tech companies and AI data center operators are expected to account for roughly 70% of quarterly revenue, providing stronger pricing than consumer-oriented memory sales.
Key Risks and Market Reaction
Key risks include accelerated Chinese production, a potential slowdown in AI investment, and declining memory prices. The market's focus now shifts to management commentary on margins, contract pricing, and investment plans. Investors will also look to Samsung's detailed Q2 results, due Thursday, for additional industry insights.
Korea's leveraged single-stock products could exacerbate Wednesday's market reaction. A report in line with consensus would validate the earnings surge but leaves the valuation debate unresolved. Investors need evidence that current margins can withstand the recent turmoil.
SK hynix shares have gained 138.10% year-to-date through Tuesday, despite the recent five-session loss of 15.58%. In the U.S., the stock closed 12.6% below its $149 offer price.
