Commentary: SK Hynix is a golden goose. It has to lay more eggs
The chipmaker’s blockbuster US listing signals South Korea’s arrival on the global economic stage, but retail investors should tread carefully, says Shuli Ren for Bloomberg Opinion.
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HONG KONG: Talk about K-power. South Korea’s SK Hynix has raised US$26.5 billion from the US stock market, the biggest first-time share sale by a foreign company. The question now is whether the trillion-dollar firm can satisfy competing demands from exacting stakeholders.
Investor enthusiasm stems from the fact that SK Hynix has morphed into a golden goose. It’s the world’s second-largest supplier of dynamic random-access memory chips, or DRAM, and the biggest when it comes to the high-bandwidth ones that are paired with Nvidia’s graphics processing units.
Seeing a supply shortage that may persist until 2027, analysts estimate that the company can generate more than US$300 billion free cash flow this year and next.
Now everyone wants to shake this money tree, starting with South Korea’s left-wing government, which views the chipmaker as the solution to the country’s socioeconomic problems. SK Hynix’s shares tumbled 10 per cent in Seoul on Monday (Jul 13) after the US debut.
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Vowing to make a “great leap forward”, President Lee Jae Myung unveiled mega projects of at least 1,350 trillion won (US$897 billion) last month, with SK Hynix agreeing to chip in 400 billion won for a new semiconductor cluster in the under-industrialised southwestern region. The area is a stronghold for Lee’s Liberal Party, but far from the established hub of chip manufacturing south of Seoul.
The government has conveniently equated “production capacity” to national wealth. It’s the easiest way to jumpstart a stagnant economy, which grew only 1 per cent last year. Business confidence was a drag: Domestic private investments fell in 2024 and 2025.
Washington, of course, also wants a piece of the pie. Commerce Secretary Howard Lutnick has pressed SK Hynix to expand production in the US. Perhaps in a nod to political pressure, Chairman Chey Tae-won promised to invest an amount “much, much bigger than the US$35 billion” his company has already put in.
HIGHLY CYCLICAL INDUSTRY
But just like US hyperscalers’ trillion-dollar AI-infrastructure build, this kind of spending spree has raised eyebrows among investors. SK Hynix has set an explicit target to double wafer capacity within five years, but it’s by no means alone.
Samsung Electronics is challenging SK Hynix’s stronghold and constructing new high-bandwidth memory (HBM) fabrication facilities, while Micron Technology has also increased spending in the US. The industry is an oligopoly dominated by the three, although China’s ChangXin Memory Technologies is starting to pose a viable existential threat.
SK Hynix management may be feeling exuberant now – Chief Executive Officer Kwak Noh-Jung sees the memory chip shortage persisting beyond 2030, longer than bullish Wall Street forecasts – but it has to keep investors in mind, too. Doubling production capacity does not necessarily boost shareholder returns.
A flood of supply is coming to market within the next five years, promising to tip over fragile supply-demand dynamics and deepen a potential downturn. SK Hynix is generating record profit now, but let’s not forget that it was in the red only three years ago. After all, it resides in a highly cyclical industry, which can go from peak to trough in as few as two years.
RETAIL INVESTORS SHOULD TREAD CAREFULLY
While institutional investors may be buying SK Hynix’s shares at their own risk, billionaire Chey does have millions of small investors to answer to, especially in a society that prizes egalitarian values.
Throughout this year, mom-and-pop traders have bought the stock, filling the void left by global asset managers selling into the rally. Wanting to amplify their returns, many purchased leveraged exchange-traded funds that were launched in late May.
These retail investors have already been penalised as SK Hynix’s Seoul-listed shares have whipsawed in recent weeks, creating losses due to a phenomenon known as volatility decay.
If SK Hynix can’t continue to deliver outsized profits and retail investors’ bets backfire, we might see real wealth destruction among South Korea’s middle class. In recent days, more positions have been forced into liquidation, a sign that perhaps the less savvy are caught in a high-stakes game that they don’t fully understand.
US investors, of course, are even later to the party. They should tread carefully.
SK Hynix’s blockbuster US listing signals South Korea’s arrival on the global economic stage, but it also brings with it potential societal pitfalls.
Its success is so spectacular that chipmakers have become the only game in town in an economy that otherwise lacks a structural turnaround story. The government relies on it for national rejuvenation, while households hope to capitalise on the stock rally and build a golden nest egg.
The chipmaker therefore must balance these competing interests, while its corporate spending decisions will affect the outcome of the global AI investment boom.
Billionaire Chey’s golden goose will have to lay many eggs.
Source: Bloomberg/zw(el)
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