"The most profitable quarter in history" coincides with a 30% monthly plunge! SK Hynix's financial report may become the "life and death symbol" of the AI storage supercycle

According to Zhitong Finance APP, SK Hynix (SKHY.US), which is set to release its first financial report since its Nasdaq listing after the US stock market closes on July 28, is attracting investor attention regarding its stock price reaction following the earnings announcement. Wall Street generally expects the company's second-quarter revenue to reach 84.12 trillion Korean won (approximately USD 57.6 billion), with a GAAP earnings per share (EPS) of 80,145.08 Korean won and a Non-GAAP EPS of 70,975.39 Korean won, translating to a GAAP EPS of about USD 4.87.

The AI-driven new round of storage upcycle continues to unfold, and as a leading manufacturer of high-bandwidth memory (HBM), SK Hynix is experiencing one of its most profitable quarters in history. However, after a rapid rise earlier, SK Hynix's stock price has recently undergone a significant correction, falling over 30% in the past month, and the market is closely watching whether this financial report can restore confidence.

"One of the Most Profitable Quarters" Faces Significant Retracement

On Tuesday, South Korean semiconductor stocks fell sharply, continuing the weak trend of the chip sector on Wall Street the previous night, with sector-wide selling intensifying.

Samsung Electronics and SK Hynix are both global leaders in high-bandwidth memory (HBM) chip supply, and their products are widely used in AI servers, making their stock prices highly sensitive to changes in capital expenditure expectations from US hyperscalers; any minor fluctuations can trigger significant volatility.

SK Hynix's intraday decline expanded to over 10%, while Samsung Electronics fell more than 8%. Other AI concept stocks also faced pressure, with Samsung SDI dropping over 7%, LG Innotek plummeting nearly 14%, Seoul Semiconductor falling about 6%, and LG Chem declining over 4%.

The Japanese semiconductor sector was not spared either. Tokyo Electron plummeted over 9%, Advantest fell more than 8%, and SoftBank Group, which has become an important barometer for AI investment through its stake in Arm, dropped nearly 5%. The stock price of Kioxia, a computer storage chip manufacturer, crashed over 15%.

This round of selling was influenced by the weak performance of the US semiconductor sector on Monday. The VanEck Semiconductor ETF (SMH) fell over 2% that day, continuing the decline from the previous Friday; AMD and Teradyne led the losses with declines of 5% and 4%, respectively, while Micron Technology fell about 2%.

This weak performance highlights the increasingly close correlation between Asian tech stocks and the main AI trading line in the US stock market.

From the options market perspective, the pricing of at-the-money straddles expiring this Friday indicates that traders expect a one-directional price movement of about 10.9% following the earnings report. Based on the current stock price of USD 139.90, the implied post-earnings price range from the options market is approximately USD 125.60 to USD 155.14.

The options positions expiring in the week of July 31 show a clear bearish pattern. Among the near-month strike prices, the put options with a strike price of USD 120 have the largest open interest, reaching 16,704 contracts, becoming a key reference point for downside. On the call options side, the contracts with a strike price of USD 170 have the highest open interest, totaling 4,516 contracts. Overall sentiment is significantly tilted towards downside protection, with total open interest in put options at 108,579 contracts compared to only 19,324 contracts in call options, resulting in a put/call open interest ratio of 5.62, far exceeding the generally considered equilibrium level of 1.0 Over the long term, traders have accumulated a considerable position in deep out-of-the-money options. The call option with a strike price of $200 has the largest open interest among all call options, reaching 53,031 contracts, suggesting that some investors are positioning for a significant rise over a longer time horizon. Meanwhile, the downside hedging is concentrated in put options with a strike price of $85, which has the highest open interest among all put options, reaching 65,470 contracts.

Q2 Outlook: Key Verification Period for AI Memory Supercycle, Profits May Reach Historic Highs

SK Hynix is scheduled to release its Q2 2026 financial report on July 29. According to a consensus from 14 brokerages compiled by South Korean financial information provider Yonhap Infomax, the company's Q2 revenue is expected to be approximately 84.1 trillion won (about $57.6 billion), with operating profit expected to reach 64.1 trillion won, both setting historical records. If the final results meet expectations, the operating profit generated in just Q2 will exceed the company's total for the entire year of 2025, which is 47.2 trillion won.

HBM Remains the Core of Growth, AI Client Contributions Continue to Rise

Market consensus believes that the core driver of this round of performance growth remains investment in AI infrastructure. The continuous improvement in traditional DRAM prices, combined with strong demand for high-bandwidth memory (HBM) and enterprise-grade SSDs, is becoming the main driver of profit growth. As global cloud service providers continue to expand AI data centers and increase procurement of high-performance storage products, SK Hynix's product structure is also steadily shifting towards higher-margin AI memory.

South Korean brokerage KB Securities expects that in Q2 this year, revenue from global tech giants and AI data center operators is likely to account for about 70% of SK Hynix's total sales, a significant increase from previous years. Analysts believe that as more HBM capacity comes online, the new supply of traditional DRAM will be somewhat constrained. At the same time, the rising proportion of long-term supply agreements (LTA) also provides greater predictability for the company's future revenue.

Compared to the past reliance on fluctuations in the consumer electronics market, SK Hynix is now increasingly dependent on large enterprise clients and AI infrastructure orders, leading to a structural improvement in profit stability. The industry expects that by around 2027, the revenue share of the company's B2B business is likely to rise to about 70%, far exceeding the levels seen during the last storage cycle. This indicates that the growth logic of this AI-driven cycle is significantly different from past traditional storage cycles.

Profitability Continues to Improve, Cash Flow Advantage Further Expands

According to market consensus, the company's Q2 operating profit margin is expected to reach 75% to 77%, higher than the first quarter level, and will continue to lead most semiconductor manufacturers globally. If expectations hold true, it means that for every 100 won of products sold, about 75 won will convert into operating profit, which is extremely rare in manufacturing.

At the same time, the company's financial situation continues to improve. Since returning to a net cash position last year, SK Hynix's cash reserves have steadily increased. As of the end of Q1 this year, the company's net cash balance was approximately 35 trillion won. The market expects this to continue to expand in Q2, providing ample funding support for subsequent capital expenditures, HBM capacity expansion, and next-generation product development With continuous profit growth, employee performance bonuses are also expected to remain high. According to South Korean media reports, SK Hynix plans to distribute the first half productivity incentive (PI) bonuses by the end of July, which are expected to reach the maximum distribution standard set by the system.

ADR premium exceeding 50% raises market concerns, long-term contract model hides risks

Despite performance forecasts hitting new highs, market sentiment is not universally optimistic. Recently, SK Hynix's stock price has significantly retreated from its highs, with its American Depositary Receipts (ADR) once trading at a premium of up to 51% over Korean common stock, prompting Wall Street to warn of overheating in AI trading.

Generally, if there is a significant price difference for the same company's stock listed in different markets, arbitrage capital usually drives prices to converge. However, SK Hynix's ADR has maintained a high premium for a long time, reflecting that American investors are willing to pay a valuation premium for the AI memory leader. However, in the context of persistently high market expectations, if the financial report or management guidance falls short of investor expectations, high valuations may also amplify stock price volatility.

In addition, there are concerns about the sustainability of long-term supply agreements (LTA) in the storage industry. The Bank for International Settlements (BIS) warned in its latest annual economic report that the temporary shortages in the AI supply chain are amplifying the risks of over-investment. Companies locking in future capacity through long-term contracts may face greater risk exposure if demand reverses. Similar views have become one of the key reasons for recent investor concerns about the valuation of the AI industry chain. Previously, the U.S. storage and semiconductor sectors had seen a significant pullback as the market began to reassess the sustainability of AI infrastructure investments and whether the pace of data center construction would slow in the coming years.

However, optimistic institutions still believe that the current supply-demand pattern has not changed significantly. Morgan Stanley analyst Joseph Moore recently stated that after discussions with several data center procurement heads, HBM and high-end storage products remain in short supply, and storage prices are expected to rise at least 25% in the third quarter. He believes that the recent pullback in storage stocks reflects market sentiment rather than a deterioration in fundamentals, and industry supply tightness may continue until 2028.

Therefore, the financial report that SK Hynix will release this week is not only to verify the record performance in the second quarter but, more importantly, to provide the latest assessment from management on HBM demand, long-term orders, capital expenditures, and the industry outlook for the second half of the year. This information will not only affect SK Hynix's subsequent stock price performance but is also expected to become a key barometer for whether the global AI storage supercycle is still ongoing