Science & Technology

Goldman and Citi Predict More Gains for SK Hynix

The value of shares of South Korean company SK Hynix Inc., which is the main supplier to US Nvidia Corp., has shown growth of more than 90% over the past year, but according to Wall Street analysts, this impressive result is not the limit to the upward trajectory of the Asian firm, due to which the scale of achievements from the standpoint of the dynamic of securities will expand in the near term.

Goldman and Citi Predict More Gains for SK Hynix

Over the past month, no fewer than 19 analysts have revised their forecasts for SK Hynix’s prospects. In this case, it means improving the vision of a company’s business prospects that is currently on an upward trajectory, which is largely due to rising consumer demand for chips. Microcircuits are becoming increasingly popular products amid the so-called artificial intelligence boom, which is a process on a global scale. The machine intelligence industry is currently experiencing highly intensive development. Competition is also increasing in the area of ​​artificial intelligence, which is a natural process. This thesis is explained by the fact that AI is actually the main technology of modernity and the driving force of progress in the current stage of the existence of human civilization. Without chips, the development of artificial intelligence is impossible, which is why the corresponding products are in demand. The prospects that the mentioned state of affairs will be observed on a long-term basis are at the maximum level of likelihood. Chips are necessary for training and ensuring the subsequent functioning of artificial intelligence systems.

Wall Street analysts expect SK Hynix to remain on its growth trajectory. This vision is based on the recognition of the enormous potential of artificial intelligence. For a company, the implementation of an appropriate forecast in the space of objective reality means an improvement in financial indicators. According to experts, the firm’s earnings growth will be recorded in the current month. SK Hynix supplies Nvidia with high-bandwidth memory chips.

Goldman Sachs Group Inc. upgraded its stock-price target to 290,000 won ($210) this week. The corresponding indicator means a potential increase of 25% compared to the close of the day. Also last week, Citigroup Inc. raised its prediction to 350,000 won, more than 50% higher than the current share price.

Roh Jongwon, chief investment officer at Infinity Global Asset Management Co. in Seoul, suggests that the current share valuation does not fully reflect the potential of high-bandwidth memory chips. According to the expert, in this case, an approach is used that also applies to traditional memory microcircuits, but HBM is almost twice as profitable.

Currently, the widespread expectation among experts is that SK Hynix will report an operating profit of 5 trillion won for the second quarter of the current year. The company is due to publish statistical data on its activities for the mentioned period on July 26. If experts’ expectations regarding the firm’s operating profit for the second quarter of the current year turn out to be reality, the corresponding indicator will reach its highest level in the last six years. Also, the potential materialization of the analysts’ forecast will strengthen the status of SK Hynix as one of the beneficiaries of the rapid development of the artificial intelligence industry.

It is worth noting that last year was less successful for the company. In 2023, SK Hynix faced financial losses, which are gradually being compensated against the background of the process of recovery in prices for memory chips. Appropriate products are necessary to ensure the functioning of artificial intelligence apps, of which there are more and more. The mentioned tendency, which shows signs of continuing in the long term and is progressively scaling, is logical in the context of the active development of the machine intelligence industry.

Citigroup reached the target level of 350,000 won by taking previous peaks in SK Hynix stock and adding some discounts. The relevant information was reported by Peter Lee, head of global tech and communication at Citigroup Global Markets Korea Securities Ltd. It is worth noting that the mentioned indicator is the most bullish among all the forecasts of analysts surveyed by the media.

Peter Lee says there is a possibility that demand for high-bandwidth memory chips has not yet been fully reflected. This point of view is based on the fact that the world does not still understand what form, scale, and content the state of affairs will have in which artificial intelligence’s potential will be completely realized. AI is currently on a trajectory of active development but has not yet approached the limits of the corresponding process. It is also worth noting that at present there is a lack and in fact cannot be a final vision of the limits of the capabilities of artificial intelligence and the final levels of its evolution. It is possible that over time machine intelligence will gain the ability to develop independently. If such a scenario becomes an objective fact that has been accomplished in the material and applied space, there is a risk that humanity, at the conceptual level, will poorly or not at all understand the vector of the evolution of advanced technology. High demand for chips is an obvious prediction as the development of the artificial intelligence industry not only continues but also accelerates in terms of quantity and the context of the qualitative aspect of the corresponding process. In a practical sense, the appropriate evolution of area AI means that not only are there more functional systems based on advanced technology, but also that these systems are becoming more complex and require more power.

Peter Lee noted that the chip market did not exist in the past, which is why there is currently no understanding of the limits of scaling this commercial space.

At the same time, there is a sentiment circulating among investors that there are reasons to be cautious as multiples rise. According to data compiled by media, SK Hynix’s value is currently 2.9 times its book value, making it the most expensive since at least 2011.

Yoon Joonwon, a fund manager at DS Asset Management Co. in Seoul, stated that the chipmaker is currently in previously uncharted territory in terms of valuation. According to the expert, SK Hynix’s earnings in the current and next year will exceed market expectations, although the market is still not confident in the implementation of the corresponding scenario.

Despite the global tendencies of high levels of demand for chips, the future for the mentioned company is not a guaranteed path to new heights along a symbolic path where there is only metaphorical sunbeams’ gold ahead. It is worth noting that various kinds of negative probabilities in this case relate rather to theoretical scenarios of hypothetical risks in the coming years. On Thursday, the value of SK Hynix shares showed a downward dynamic. The drop in the corresponding indicator was 4.7%. This movement in the value indicator of SK Hynix shares is associated with the reports that Samsung Electronics Co. in the foreseeable future intends to begin negotiations on the supply of its high-bandwidth memory chips to Nvidia. The relevant information was published by South Korean media. Samsung denied these data. At the same time, such negotiations are not some kind of fantastic scenario, since cooperation with Nvidia is obviously beneficial for competitor SK Hynix from the point of view of commercial interest. For this reason, the information released by the media can be characterized as something that is not happening in the present but is very realistic in the context of the prospects of materialization in the future.

There are also concerns about a potential oversupply of SK Hynix memory chips. The specified concerns emerged after the company announced a $75 billion investment plan in June that would run through 2028. In this case, an increase in production volumes is envisaged, which could provoke a drop in prices for chips and cause a downturn in the memory microcircuits industry. Peter Lee says that because this is an untrodden path, volatility is inevitable.

As we have reported earlier, South Korea Kicks Off $19 Billion of Chip Loans.

Serhii Mikhailov

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Serhii’s track record of study and work spans six years at the Faculty of Philology and eight years in the media, during which he has developed a deep understanding of various aspects of the industry and honed his writing skills; his areas of expertise include fintech, payments, cryptocurrency, and financial services, and he is constantly keeping a close eye on the latest developments and innovations in these fields, as he believes that they will have a significant impact on the future direction of the economy as a whole.