A 1000% rally: the hype around memory chips has propelled SK Hynix into the $1 trillion club of companies

The capitalization of South Korea's SK Hynix has risen above $1 trillion for the first time: investors expect that demand for AI components will permanently raise the valuations of companies in the industry. The leading supplier of high-speed memory chips for data centers became the third company from Asia in the "trillionaires' club" - after Taiwanese custom chip maker TSMC and its main rival Samsung Electronics.

SK Hynix shares soared 14.9% in trading on May 27 in Seoul, with gains over the past 12 months exceeding 1,000% at one point. Samsung shares jumped 8% in trading. The surge of two of South Korea's most expensive companies lifted the local Kospi index by 5%, after which the exchange had to briefly turn on a restrictive mechanism to cool trading, Bloomberg reports.

A sharp rise in quotations of SK Hynix and Samsung followed a record jump in the securities of the U.S. Micron since 2011 on May 26 in New York. UBS, Switzerland's largest bank, tripled its target price for Micron shares, giving Wall Street a reason to cheer.

"Memory chip makers have been irrationally undervalued, but that gap is closing now," said Life Asset Management Chief Investment Officer Kang Dae-kwon. "We are still in the early stages of the rally," the expert added.

Even after rapid growth this year, SK Hynix securities are trading at a multiple of about 7 to expected annual earnings, while the Philadelphia Semiconductor index has a multiple of 27, Bloomberg states. A strong catalyst for further growth could be the expected listing in the U.S., Barclays notes. The company has applied for placement of American depositary receipts (ADR): it may become one of the largest debuts of a foreign company in New York, Bloomberg states.

"Judging by profitability alone, it's hard to predict a short-term peak," said Cha Seo Yoon, an investment manager at Seoul-based Taurus Asset Management. - Even if investors don't price the stock at a 20x multiple like bigtechs, many see the potential for valuations to rise to 10x."

Betting on memory has already become a distinct investment theme: the Roundhill Memory exchange-traded fund, the first pure-play ETF on global memory chip makers, has more than doubled in value since launching on April 2, Seeking Alpha points out. But the rally is vulnerable, Bloomberg warns: it's built on expectations of astronomical profit growth, so lower deficits or reduced AI spending will cause quotes to reverse.

The risks are also increased by the launch in South Korea of leveraged ETFs on individual stocks, which can accelerate volatility in a heated market. According to the agency, on Ma 27, a Korean double leveraged fund on SK Hynix jumped 24%, while a similar instrument on Samsung rose 15%.

This article was AI-translated and verified by a human editor