(Bloomberg) — Investors are bullish on the chance for shares in SK Hynix, Nvidia Inc.’s top memory supplier, to rise further after their stock remains cheap even after a big rally.
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The company’s stock price has risen 95% since the beginning of last year, far outpacing memory rivals Samsung Electronics and Micron Technology. Still, it’s only 11 times expected earnings (15 times Samsung’s and 30 times Micron’s). 27 times the Philadelphia Semiconductor Index.
The key is that SK Hynix was able to win the competition in the high-bandwidth memory (HBM) market, which can quickly supply large amounts of data needed for AI. This helped the company, which had been playing second place to Samsung for years, gain more investor attention.
“It’s too risky not to own SK Hynix in your portfolio,” said Yoon Jun-won, fund manager at DS Asset Management. We expect SK Hynix to have further room for growth.”
HBM features a DRAM stack that is optimized to work in parallel with accelerators, which are processors widely used in AI training. HBM chips are much more profitable because they are not subject to the cyclical demand and pricing of commoditized traditional memory.
SK Hynix had been in the red for four consecutive quarters, but thanks to its expensive AI products, it posted an operating profit for the three months to December.
HBM reader
The company hopes to maintain its lead over Samsung and Micron in the AI field. To achieve this objective, SK Hynix has reportedly partnered with top foundry Taiwan Semiconductor Manufacturing to develop next-generation HBM chips. SK Hynix declined to comment on the report, and TSMC did not respond to a request from Bloomberg.
The news “triggered market speculation that SK Hynix is the clear winner in the HBM space,” reflecting strong demand for the company’s products, said JPMorgan Chase analyst Jay Kwon. As mentioned in this week’s research note. “We expect the stock’s positive momentum to continue in the short term.”
Kwon is one of 40 analysts who have rated the stock equivalent to buy, with only three holding recommendations and none selling. The average sell-side target price indicates an expected return of 20% for her over the next 12 months.
Option traders are also bullish, with average daily calls this year up more than 57% compared to last year, according to Bloomberg calculations. The most popular contract traded on Thursday was a bet that the stock would rise another 4% by mid-March.
Upcoming catalysts include Nvidia’s earnings report on February 21, which should provide further details on the AI outlook. Investors will also be watching news of further partnerships and developments by rivals for early signs of a change in leadership in this fast-growing sector.
“SK Hynix, with its significant competitive advantage in HBM, has the potential to capture significant market share in the DRAM industry,” Bloomberg Intelligence analyst Masahiro Wakasugi wrote in a note. “The company’s HBM DRAM advantage will continue in the near term given its deep relationships with AI processor designers.”
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–With assistance from Jane Lanhee Lee.
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