14 years of lurking and finally turned over! SK Hynix takes a bold bet on HBM to reap the benefits of AI, but there are hidden risks beneath the trillion-dollar market value halo.

SK Hynix briefly surpassed Samsung Electronics on Monday to become the highest valued company in South Korea, the final result of a series of bets over the past 14 years. These bets have brought skepticism and ridicule to the company, but ultimately placed it at the center of the global artificial intelligence (AI) gold rush. SK Hynix's stock price has risen over 270% in 2025, and has surged nearly 300% so far this year. Since May, SK Hynix's market value has exceeded 1 trillion US dollars, making it the third Asian company to reach this market value milestone after Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR and Samsung Electronics. All in on HBM! SK Hynix Rises with the AI Wind Magnachip Semiconductor Corp. was founded in 1983, originally named Hyundai Electronics. Before becoming SK Hynix, the company went through several crises and acquisitions. In 2001, due to a sharp drop in chip prices, the company was on the brink of bankruptcy. Subsequently, a consortium of creditor banks led by state-owned banks came to the rescue. Creditors had attempted to sell their stake many times, including a 2002 sale to Micron Technology, Inc. (MU.US), which was rejected by the company's board. Ten years later (in 2012), SK Group, known for its telecommunications and energy businesses, acquired Hynix. At the time, this deal was seen as financially irresponsible. This deal prompted the rating agency Standard Pool Corporation to give a negative outlook to SK Telecom, citing the highly cyclical nature of the semiconductor industry and the need for large capital expenditures. In contrast, Samsung was "big in the family" at the time, with a valuation over 10 times that of SK Hynix and a global leader in the Dynamic Random Access Memory (DRAM) field. SK Group Chairman Choi Tae-won explained his thoughts in a book published in January this year. Choi Tae-won said, "When we acquired Hynix, my real goal was to transform it from a company that produces standardized memory products to a mainstream semiconductor company that produces indispensable products." Former SK Hynix HR executive Hyeon Sang-yeol said the company's identity as a "challenger" made employees work harder. He said, "We believed that it was almost impossible to surpass Samsung in the standardized DRAM product field." "We urgently wanted to change the market landscape. We needed a breakthrough." In order to find a competitive advantage, SK Hynix bet on another niche product called High Bandwidth Memory (HBM). This chip was able to transmit data at high speeds, but at the time it was not widely adopted by data center customers. In 2014, SK Hynix and AMD (AMD.US) jointly launched the world's first HBM product, but faced setbacks during the development of the second generation HBM chip, falling behind Samsung in the latter part of the 2010s. Two former SK Hynix executives said this situation had caused internal discussions about whether to stop HBM development. But in the end, SK Hynix decided to increase its investment, restructure its technology roadmap, and invest heavily in new capacity. Shim Dae-yong, who was in charge of SK Hynix's HBM development at the time, stated that they expected demand from NVIDIA Corporation (NVDA.US) to continue to grow - at that time, NVIDIA Corporation was mainly seen as a supplier of 3D graphics chips for the computer and video game markets. This gamble included an investment of 880 billion South Korean won (about 640 million US dollars) in packaging facilities in Icheon and other assets. However, initially, this investment seemed to backfire. In 2019, due to a sharp drop in demand from NVIDIA Corporation and cryptocurrency miners, the factory faced long-term problems of underutilization. Shim Dae-yong said, "In 2019, this was really worrying, it looked outdated." However, with the introduction of ChatGPT by OpenAI in 2022 and the subsequent AI boom, the situation changed. As a key component of NVIDIA Corporation's AI accelerators, this AI boom also ignited demand for HBM, with SK Hynix being NVIDIA Corporation's main HBM supplier. Shim Dae-yong said, "No one expected the HBM market to experience such explosive growth. But we are ready in terms of performance and capacity." SK Hynix's strategy on HBM helped the company to emerge from the boom and bust cycles of the global memory industry faster than Samsung. In 2023, the storage market was severely depressed, prices plummeted, and SK Hynix recorded an annual operating loss of 7.73 trillion South Korean won. By 2024, the company set a record high in operating profit and briefly surpassed Samsung in 2025 to become the world's largest DRAM manufacturer. Shin Chai-yong, a professor of business administration at Seoul National University, said, "No one would have thought that SK Hynix could surpass Samsung." "In this capital-intensive industry, it is almost impossible to catch up with the market leader, as it requires massive investment. HBM is the powerful DRIVE that helped them achieve a turnaround." As demand for AI storage chips continues to rise, South Korea's SK Group is simultaneously increasing its capital layout and capacity expansion. SK Hynix has confirmed plans to issue American Depositary Receipts (ADRs) this year for listing in America. According to sources, SK Hynix plans to issue ADRs in the US in August. This move aims to capitalize on the hot market interest in AI-related stocks and expand its investor base. Sources had previously stated that this ADR issuance could raise up to 14 billion US dollars. In addition, Choi Tae-won previously revealed that SK Hynix plans to increase its chip wafer capacity to three times the current level by 2034 to meet the strong demand brought by AI development. SK Hynix's Structural Dilemma SK Hynix's HBM strategy has brought early technology and capacity advantages, making it one of the companies enjoying excess returns brought by the AI industry chain. Data shows that in the first quarter of 2026, SK Hynix had revenues of 52.6 trillion South Korean won (approximately 34.5 billion US dollars), a year-on-year increase of 198% and a quarter-on-quarter increase of 60%; operating profit reached 37.6 trillion South Korean won, a year-on-year surge of 405% and a quarter-on-quarter growth of 96%; and the operating profit margin reached a historical high of 72%. However, these huge returns also entail stricter requirements for continuous investment and risks. For SK Hynix, maintaining its early mover advantage and position requires the company to reinvest at a pace much higher than the industry average in HBM generational evolution, advanced process scale expansion, and deep customer engagement depth to keep up (or slightly ahead) with the overall pace of AI iteration. SK Hynix's management has emphasized that HBM products are the main driver of the company's super-high profits. However, the high profit margin brought by HBM does not directly translate to an increase in free cash flow. The more HBM earns, the more SK Hynix needs to maintain its leading position in HBM. Once the next generation product roadmap is determined, a series of reinvestments (including next-generation nodes/stacks/packaging, etc.) will be required to maintain the high profits brought by HBM. This is different from the characteristics of the ordinary DRAM business. Ordinary DRAM has universal economies of scale, where corresponding fixed assets can be profitable over the product generational cycle. However, HBM has stronger customized attributes, where HBM manufacturers need to adapt production according to chip design manufacturers' requirements, have weaker universality, and shorter generation cycles (1-2 years), leading to greater pressure on the amortization of fixed assets. This means that HBM manufacturers can only offset the weak economies of scale of this business through high Average Selling Prices (ASPs) and deep customer engagement relationships. From the current business situation, SK Hynix's performance is in a high growth trend, with its HBM generation still leading the industry and operating profit margins at a high level, and the 2026 HBM capacity has already been "bundled" by NVIDIA Corporation's next-generation Rubin platform. Therefore, the characteristics of weak economies of scale of HBM have not yet been evident in SK Hynix's financial reports, but this pressure does objectively exist and is accumulating in a dynamic way. HBM generational advancement needs to be synchronized (or slightly faster) with the iteration pace of AI chips and downstream large model manufacturers like NVIDIA Corporation, meaning SK Hynix's HBM must provide engineering samples close to the final state before NVIDIA Corporation's final state for chip design, verification, and system integration. In addition, the actual mass production ramp point of HBM must be slightly before the GPU release, otherwise it will slow down the entire process of AI computing power iteration. As a result, SK Hynix's fixed assets need to be continuously and massively reinvested and remodeled, each product generation's economies of scale will be significantly weakened, and once the Average Selling Price fluctuates or customer relationships loosen, the weak economies of scale and the fixed asset depreciation pressure from initial investments can significantly change the company's profit structure. Data shows that SK Hynix's capital expenditures were 27.5 trillion South Korean won in 2025, accounting for approximately 28.3% of revenue. By 2026, capital expenditures are expected to increase significantly to over 40 trillion South Korean won, reaching around 35% of revenue. Over 50% of the funds will be directly used for equipment purchases (such as lithography, advanced packaging TSV equipment), with a focus on expanding AI storage chip advanced packaging plants in South Korea and promoting the Icheon semiconductor cluster and Cheongju M15X wafer fab to support HBM capacity ramp-up and HBM4 readiness. This implies that a large portion of SK Hynix's operating profit is reinvested rather than converted into free cash flow or higher dividends. In other words, in order to maintain high profits and market position, SK Hynix needs high investment to keep its technological edge and maintain a pre-level and higher frequency of massive capital expenditures to meet the competitive needs of chip manufacturers. Once demand growth slows or competition intensifies, the massive upfront investment may create overcapacity pressure or depreciation burdens, further eroding the company's profit elasticity and leading it into a structural dilemma of "the more you earn, the less money you have".