Nvidia supplier SK Hynix Reports Record Second-Quarter Profit Amid AI Memory Chip Demand

SK Hynix announces its highest quarterly profit in six years, driven by advanced memory chips for AI computing. The company's second-quarter results show revenue of 16.42 trillion Korean won (approximately $11.86 billion) and an operating profit of 5.47 trillion Korean won.

Revenue from April to June increased by 124.7% from the previous year, marking the highest quarterly revenue in the company’s history.

AI Memory Demand

The rise in memory product prices, especially high-bandwidth memory (HBM) for AI applications, contributed to a 32% revenue increase compared to the previous quarter. SK Hynix supplies these critical memory chips to companies like Nvidia.

Despite strong financial results, SK Hynix shares fell by 7.81% as the broader South Korean Kospi index declined, influenced by the sell-off in U.S. tech stocks following disappointing earnings from Alphabet and Tesla.

SK Hynix expects continued strong demand for AI servers and a gradual recovery in conventional markets with the launch of AI-enabled PCs and mobile devices. The company plans to maintain its leadership in the HBM market by mass-producing 12-layer HBM3E products and shipping them by the fourth quarter of this year.

The company highlights the need for increased investment to meet the demand for both conventional DRAM and HBM, which require more wafer capacity.

This year's capital expenditure is expected to be higher than initially planned due to these requirements.

SK Group Chairman points out: AI and Nvidia may face bubble risks

As one of Nvidia's largest suppliers, SK Group Chairman Cui Taiyuan recently stated that Huida's leading position in the AI chip market will be unrivaled for at least 2 to 3 years.

Cui Taiyuan and Huang Renxun took a photo. Source: Choi Tae-won SNS

However, he also said that if AI continues to fail to guarantee its profitability, The demand for AI chips will decrease, and Huida’s business model will face collapse.

In addition, Choi Taiyuan compared the current AI craze to the California gold rush in the 19th century, saying: "There were gold rushes in the past, but now people are trying to mine gold mines called AI. Mining gold requires many tools, such as jeans and Shovels, NVIDIA is currently doing something similar to selling shovels.”

However, he also pointed out that whether the AI craze can be sustained is still full of uncertainty.

Once AI technology cannot develop a sustainably profitable business model, its craze may fade away as quickly as the gold rush of the past. "When gold is no longer easy to come by, shovels won't be sold."

Analyst Insights

Daiwa Capital Markets' SK Kim forecasts tight HBM and memory supply to persist until 2025, creating a favourable price environment for SK Hynix.

The AI boom, driven by large language models like ChatGPT, has stretched the supply of high-end memory chips, with major producers like SK Hynix and Micron nearly sold out for 2024 and 2025.