The largest foreign company IPO in the US stock market is coming: SK Hynix will open a rally by tapping into NASDAQ to attract global incremental funds?

The Zhitong Finance APP noted that this week, SK Hynix's $29 billion plan to list on the U.S. stock market could become the largest IPO by a foreign company in history. However, this is not just about raising funds; it is also about competing in the hottest area of the global stock market—memory chips used for artificial intelligence (AI) computing.

For years, the trading price of this South Korean semiconductor manufacturer has been below that of its main U.S. competitor, Micron Technology (MU.US). As manufacturers of memory chips and other equipment used in AI data centers drive the performance of the S&P 500 index, leveraging the world's deepest stock market and its enthusiasm for all things AI may help change this discount situation.

Daniel Morgan, senior portfolio manager at Synovus Trust Co., which holds Micron stock, stated, "We are in an era of extreme enthusiasm for chip stocks," adding, "Now is a good time to get the U.S. involved in your stock."

For most U.S. investors, betting on SK Hynix has been very difficult, if not impossible. Micron has become the second-best performing stock in the S&P 500 index this year with an astonishing 242% increase. Like Micron, SK Hynix has also benefited from the soaring demand for high-bandwidth memory (HBM) chips. However, directly holding SK Hynix's stock listed in South Korea means trading must occur during non-business hours in the U.S.

Another option is to purchase unsponsored American Depositary Receipts (ADRs) in the over-the-counter (OTC) market. These unsponsored ADRs not only perform worse than SK Hynix's stock in South Korea but also suffer from severe liquidity constraints, making trading them a challenge.

SK Hynix is expected to list on NASDAQ on July 10, which should change this situation and improve the valuation of the team that has lagged behind. The trading price of this Korean company is 6.2 times its expected earnings for the next 12 months. After a 14% drop in stock prices last week (the worst performance since March), Micron's current price-to-earnings ratio is 7 times, but just recently, on June 22, its P/E ratio was over 11 times.

SK Hynix's stock price has long been below that of Micron Technology.

Di Zhou, portfolio manager at Songberg Investment Management, which holds SK Hynix stock, stated, "This issuance targets investors who currently cannot access the Korean stock market," adding, "The listing of SK Hynix on NASDAQ provides an opportunity for direct, frictionless participation in one of the most attractive pure plays in the AI memory cycle."

In the past 12 months, both SK Hynix's stock listed in South Korea and Micron's stock have risen by about 700%, pushing the market capitalization of both companies above $1 trillion In the memory and storage sector, this surge is not an isolated case. During this period, SanDisk led the S&P 500 index, soaring by 3,676%, while Western Digital rose by 719%, and Seagate Technology Holdings jumped by 449%. Overall, the Philadelphia Semiconductor Index has increased by 125% over the past 12 months and has just recorded its best quarterly performance ever.

Are good times here to stay?

However, investors are increasingly concerned about how long this good fortune can last. The tech giants driving most of the memory demand (including Alphabet and Microsoft) are increasingly turning to debt and equity markets to fund capital expenditures, whereas not long ago, these expenditures were funded from their cash reserves. These capital expenditures have propelled the profits of memory chip manufacturers to new heights. But if this faucet is turned off, the entire dynamic will change.

Ed O'Gorman, CEO of River Wealth Advisors, stated, "Investors risk stepping into a potential speculative bubble," adding, "You have to be very careful investing in anything that has risen like these stocks."

Meanwhile, SK Hynix's ADR will undoubtedly attract many U.S. investors looking for more ways to bet on the biggest beneficiaries of AI spending.

"There are many who have no positions in this area, so its listing could attract those who have not yet bought in," said Kim Forrest, Chief Investment Officer and founder of Bokeh Capital Partners, which holds Micron stock. Due to some differences surrounding the governance of the ADR listing, she plans to forgo participation in this issuance, but she expects many peers to line up for a share.

SK Hynix's net profit is projected to reach 221 trillion won (approximately $144 billion) in 2026, with sales of 355 trillion won (approximately $231 billion), representing increases of 415% and 265% respectively compared to 2025. Micron's net profit for its current fiscal year ending August 31 is expected to soar by 876% to about $83 billion, with sales jumping 247% to $130 billion.

To keep up with demand, SK Hynix plans to invest hundreds of billions of dollars to build two production plants in South Korea, as does its competitor Samsung Electronics. The issuance by SK Hynix will help fund these commitments. However, increasing capacity also raises concerns that if demand cools, there could be a potential oversupply in the future.

The memory industry is notorious for its boom-and-bust cycles. Just three years ago, both Micron and SK Hynix suffered losses due to a sharp decline in memory chip prices caused by a sudden drop in demand.

One clear benefit of this issuance is that it will provide SK Hynix with the opportunity to be included in U.S. stock indices, which will bring buying from passive management ETFs that track these benchmarks. For example, the Invesco QQQ Trust series, known by its stock code QQQ, tracks the tech-heavy NASDAQ 100 index and has $482 billion in assets.

Arbitrage Opportunities

Wall Street bulls view the deeper capital pool, the ability to trade stocks during regular market hours, and the eventual inclusion in the NASDAQ 100 index as reasons to remain optimistic about the ADR More importantly, listing in the United States will attract hedge funds seeking to trade on the arbitrage opportunities arising from the valuation differences between Nasdaq-listed ADRs and stocks listed in Seoul—this strategy was previously employed in the offerings of Alibaba and TSMC.

The trading price of Taiwan Semiconductor ADRs is higher than local stocks.

"Due to the existence of cross-market structures, there may be premiums and discounts between the two," said Brendan Ahern, Chief Investment Officer of KraneShares, which holds Micron shares. "This will attract arbitrage players and enhance the liquidity of the stock."

It is currently unclear whether investors can freely convert SK Hynix's ADRs into Korean stocks, a feature that may determine whether the price difference persists and how arbitrageurs will construct their trades. Full convertibility would allow investors to exchange the two securities and keep prices closely aligned, while restrictions could allow the U.S.-listed stock to maintain a premium. This dynamic is playing out with TSMC, where data shows that over the past year, its ADR has averaged a premium of over 21% compared to local prices, currently around 13%.

Perhaps most importantly, investors will focus on SK Hynix's ability to narrow the valuation gap with Micron. This offering may be very attractive to U.S. investors, encompassing pure long portfolio managers aiming to increase their risk exposure to memory stocks in a booming price environment, as well as hedge funds focused on IPOs and other types of stock offerings.

Morgan from Synovus Trust holds a small amount of SK Hynix through over-the-counter depositary receipts and is curious about the new ADR, but is taking a wait-and-see approach regarding any purchases.

"This will be a very hot target," he said, "We need to get it officially listed and then proceed from there."