There is a specific kind of market message that only arrives when a company does everything right and the shares fall anyway, and on Wednesday the memory industry received it in the plainest possible terms.
The Quarter
South Korea’s SK Hynix, which specializes in memory chips for electronics and artificial-intelligence systems, earned a net profit of 93.9 trillion won in three months — equivalent to around $64 billion. That was 13 times the figure a year ago, and it exceeded the company’s combined net profit for the past five years.
Yet the figure fell short of some bullish investor expectations and fanned fears about the durability of the AI boom. The stock fell as much as 19.6% before finishing down 9.6%. Shares of fellow South Korean chip maker Samsung Electronics also fell, as did Japanese flash-memory maker Kioxia — which in June was briefly the most valuable company on the Tokyo stock market before seeing shares fall about two-thirds from their peak.
The run-up into the print had been extraordinary. SK Hynix’s market value surpassed $1 trillion in late May on the South Korean exchange; on July 10 the firm made its U.S. trading debut on the Nasdaq, raising more than $26 billion. Late last week SK Group, which controls SK Hynix, announced a $500 billion partnership with Nvidia (NVDA) for next-generation memory supply and AI data centers. Then came the blowout earnings report. Then came the selling.
The Bull Case Has Not Changed
Data centers require large quantities of memory chips to train and operate AI systems, and most analysts believe demand will continue surging in the next few years. That has lifted shares of the three leading memory-chip makers — SK Hynix, Samsung and Micron Technology (MU) of the U.S. SK Hynix’s shares have been particularly sought after because of its expertise in high-bandwidth memory, a specialized type of chip for AI computing.
The spending behind that demand is not speculative. Four leading Silicon Valley hyperscalers — Microsoft (MSFT), Meta Platforms (META), Amazon (AMZN) and Alphabet’s Google (GOOGL) — together plan to spend as much as $670 billion this year on AI-related capital expenditures. Last month SK Hynix and Samsung said they would collectively invest more than $500 billion in a new chip-making hub in southwestern South Korea.
Nomura, the Japan-based brokerage, projects that revenue for DRAM chips — one of the two major types of memory — will surpass $2 trillion by 2030, a roughly 12-fold increase from 2025. Kim Young-gun, a semiconductor analyst at Mirae Asset Securities in Seoul, called SK Hynix’s stock move “an excessive correction relative to the fundamentals,” pointing to the earnings, the order books from customers such as Google, and rising spot prices for memory as evidence the boom is continuing and supply is staying tight.
Three Worries, Stacked
So why sell it? Because after a run-up like that, any suggestion that growth might have limits is enough to spook investors — and this week the paper handed them three suggestions at once.
The first is circular financing: deals in the AI business in which chip makers help their customers buy their chips. Those fears were reignited by the Journal report that Nvidia was in talks to provide a roughly $250 billion backstop for OpenAI that would help finance a data-center project. We wrote that story as Part I’s lead, and named it for what it is: vendor financing with a term sheet instead of a balance sheet.
The second is the growing might of China in semiconductors. On Monday, Chinese memory-chip maker CXMT went public in Shanghai and instantly became the most valuable company listed in mainland China; its shares gained 12.7% on Wednesday, giving it a market capitalization of more than $500 billion — not far short of SK Hynix’s $705 billion as of the close of trading in Seoul the same day. China is also making advances in building homegrown lithography machines, although its companies remain far behind ASML of the Netherlands. We covered the debut in Part I.
The third is where the squeeze actually lands. Qualcomm (QCOM) blamed its own weak quarter partly on higher memory costs. That is the boom eating its own supply chain: the bottleneck collects the margin, and the customer layer pays for it.
Welcome to the most fickle stock market in the world, where a record that would have been unthinkable two years ago is a disappointment. When perfect earnings get sold, the market is not grading the quarter — it is grading the durability of the boom, and this week it heard “circular financing” and “state-backed new entrant” in the same session. This is the same lesson as Part I’s CXMT story and Part II’s AI-credit story, converging on one sector.
Action: HOLD Micron (MU) at the watch we opened in Part I — do not confuse a cheap multiple with a safe cycle; HOLD Taiwan Semiconductor (TSM) and the index-level semis. WATCH Qualcomm (QCOM) as the canary: when memory costs crush the customers’ margins, the boom is eating its own supply chain. Note the memory: high-bandwidth memory is the AI bottleneck, and bottlenecks attract both profits and rivals — in that order.
- HXSCL · SK Hynix (000660.KS) · not held, sector read
- MU · Micron · watch-hold, not owned directly
- QCOM · Qualcomm · watch opened · memory-cost canary
- NVDA · Nvidia · hold, no adds at weight
- TSM · Taiwan Semiconductor · hold
- CXMT · Shanghai listing · state-backed entrant, not investable here
Related from this edition: China built a $484 billion chip company in a decade · Meta asked Wall Street to pick up the AI tab