SK Hynix Shares Have Their Worst Day Ever After a Record-Breaking U.S. Debut. Is It Time to Buy?

Shares of South Korea’s SK Hynix, Nvidia’s main supplier of memory chips, plummeted 15.4% on July 13— the first time in the company’s history. Shares of its direct competitor, Samsung Electronics, ended the trading day down 10.7%. The plunge in the shares of the country’s two largest issuers dragged down the local Kospi index—the benchmark fell nearly 9%, triggering an automatic trading halt.

The sell-off followed the successful debut of SK Hynix shares in New York: On Friday, July 10, the American Depositary Receipts (ADRs) rose 13%. The $26.5 billion offering set a record for a foreign company on the U.S. market, and demand for the shares far exceeded the amount offered.

Traders surveyed by Bloomberg cited profit-taking and the shift by some investors from SK Hynix shares in Korea to ADRs as the main reasons for the decline in Asian stocks. Maeil, South Korea’s leading business newspaper, reports that sentiment may have been influenced by calls from some foreign institutional investors to “buy ADRs and open short positions on SK Hynix’s primary shares.”

On July 13, Korea Investment & Securities warned that SK Hynix’s operating profit for the most recent quarter could be 8% below the consensus estimate—due to the large share of revenue from high-speed HBM memory, whose prices are rising more slowly than those of conventional chips.

Niko Rosty, an analyst at MRM Research, believes that SK Hynix shares in Asia now appear “deeply oversold.” “There could be another week of declines, but we view this as an opportunity to buy more,” he wrote in a note on Smartkarma (as quoted by Bloomberg). “The rally in Korea should push the ADRs higher. So now is a good time to buy.”

KB Securities argues that the strong performance of SK Hynix’s ADRs in the U.S. could trigger a self-sustaining rise in the stock prices of both SK Hynix and Samsung Electronics, which operate in the same sector.

SK Hynix has become one of the main beneficiaries of the neural network boom: since late 2022, its shares in Seoul have risen more than 25-fold, as soaring memory chip prices have driven the company to record profits. However, the chipmaker’s stock price has now fallen 37% from its June high: investors are concerned about the pace of capacity expansion for memory production and are increasingly wondering how long the rapid growth in corporate AI spending will last. Some of the largest leveraged exchange-traded funds (ETFs) investing in SK Hynix shares have lost nearly 50% since their debut on the Seoul Stock Exchange in late May, Bloomberg notes.

The South Korean market has become noticeably more volatile: since 2000, the trading halt mechanism on the Korea Exchange has been triggered 13 times, seven of which occurred this year. Bloomberg attributes the sharp price swings to a frenzy among retail investors and the popularity of leveraged ETFs tracking SK Hynix and Samsung.

The U.S. Securities and Exchange Commission (SEC) has postponed the launch of U.S. double-leveraged and inverse ETFs linked to SK Hynix ADRs by one day. The regulator has authorized trading to begin on July 14, rather than today as originally planned, according to Maeil. The newspaper notes that a similar delay occurred during SpaceX’s IPO.

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