SK Hynix’s HBM3E memory chips
The share price of SK Hynix Inc. plummeted as much as 11% at one point on Thursday after Morgan Stanley sharply cut its target price in an about-turn on its view on the world’s No. 2 memory chipmaker in just three months.
Morgan Stanley on Sept. 15 slashed the target price for SK Hynix to 120,000 won ($90) from 260,000, suggesting the stock has room to drop 26% from its closing price on Sept. 13.
It forecast the DRAM and high-bandwidth memory (HBM) market would enter a downturn next year due to softening demand and oversupply. The US brokerage house downgraded the second-largest stock on South Korea’s main bourse Kospi to “underweight” from “top pick.
On Thursday morning, SK Hynix shares skidded to as low as 144,700 won, its lowest intra-day level since hitting 137,900 on Feb. 8 of this year.
Thursday is the first stock market trading day in South Korea after the report publication on Sept. 15. The domestic stock market had been closed during the Korean Thanksgiving Chuseok holiday on Sept. 14-18.
“We believe the fourth quarter (of 2024) marks the peak of the (memory chip) cycle in terms of year-on-year rate of change,” Morgan Stanley said in the research note.
“Memory conditions are beginning to deteriorate. It will get tougher for revenue growth and margins from here as we move past late-cycle conditions,” noted.
The downgrade and target price cut marked a flip-flop on its view on SK Hynix in three months and contrasted SK Hynix’s bullish outlook for the memory chip market.
The negative comments rattled investors betting big on a surge in AI-driven memory chips.
Some market analysts played down the report, titled “Winter looms – double downgrade to underweight,” saying it exaggerated the risk to the semiconductor industry and failed to reflect the growing demand for chips tailor-made for customers.
(Graphics by Dongbeom Yun)
Morgan Stanley forecast HBM supply would more than double in 2025, factoring in Samsung Electronics’ production ramp-up as Nvidia’s new HBM supplier after SK Hynix and Micron Technology.
It added the cyclical DRAM shortages are coming to an end and Samsung’s foray into the HBM market will likely challenges sustainable long-term margins of the high-performance chips..
SK Hynix’s operating margins will likely peak in early 2025, with the memory chip sector forecast to enter a downturn later in 2025, according to Morgan Stanley.
(Graphics by Dongbeom Yun)
The research note was issued about one month after SK Hynix CEO Kwak Noh-jung told employees at a company town hall meeting that the memory chip market was expected to stay buoyant until the first half of next year, powered by AI boom-triggered demand for high-value-added memory chips.
But the brokerage house said SK Hynix will unlikely meet its future guidance in the coming quarters, saying “Hynix is now least preferred among our global memory stock coverage.”
Morgan Stanley also cut the target price for Samsung Electronics by 27.6% to 76,000 won, compared with 64,400 won as of market close on Sept. 13.
Samsung released the industry’s first 36-gigabyte 12-layer HBM3E chips in February 2024 (Courtesy of Samsung Electronics)
Some semiconductor observers argued that the Korean chipmakers’ pivot toward high-performance chips HBMs and solid-state drives for use in data centers will result in supply constraints in commodity DRAMs and NAND memory, which are in growing demand for AI PCs and AI phones. But Morgan Stanley said such comments are just statements of likelihood.
They also pointed out its negative outlook for SK Hynix contradicts its views on Nvidia and the world’s largest chip contract manufacturer TSMC, which it put on the list of beneficiaries of the AI data center demand.
In the latest report, Morgan Stanely also said Chinese smartphone demand continues to stall. Some PC OEMs stop purchasing to digest accumulated inventory.
In response, Samsung Electronics and SK Hynix said “DRAM demand from smartphone and PC manufacturers have neither declined nor increased.
SK Hynix is the world’s No. 1 HBM supplier. HBM is a high-capacity, high-performance semiconductor chip, stacking multiple DRAM chips on top of one another. It is used to power generative AI devices like ChatGPT, high-performance data centers and machine learning platforms.
As of market close on Sept. 13, SK Hynix shares had gained 14.3% year to date, outperforming a 3% decline in the wider Kospi index.
By Jung-Soo Hwang
hjs@hankyung.com
Yeonhee Kim edited this article
