"Selling Shovels" to NVIDIA! This South Korean chip giant's stock surged over 50% this year.

In the field of generative AI hardware, AI chip supplier NVIDIA has undoubtedly become the main winner. However, apart from NVIDIA, there is another low-key big winner, and that is SK Hynix, which supplies high-bandwidth memory (HBM) chips to NVIDIA.

SK Hynix is the main supplier of HBM for NVIDIA's high-performance chip H100, and its stock price has risen by more than 50% this year. H100 has been in short supply this year, and this GPU is equipped with faster HBM3 technology. Compared to the previous HBM2e standard, this improvement amplifies the computing performance of AI server systems.

As one of the world's largest memory chip manufacturers, SK Hynix has long been committed to developing powerful memory chips. In 2013, SK Hynix and AMD were the first to introduce the first-generation HBM to the market. HBM1 has higher bandwidth than DDR4 and GDDR5 products, smaller form factor, lower power consumption, and better meets the bandwidth requirements of processors such as GPUs.

HBM vertically stacks multiple DRAMs, significantly improving data processing speed. Park Myeong-jae, the head of advanced process storage chip product design at SK Hynix, said that this field was considered an "unknown territory" at that time.

With the increasing demand for cutting-edge GPUs in the industry, the demand for high-performance HBM chips is also soaring. Market research firm TrendForce previously predicted that HBM demand will grow by 58% YoY in 2023, and is expected to further increase by 30% in 2024.

For a long time, SK Hynix has been a major participant in the ups and downs of the memory chip industry, but historically, it has not been seen as an industry pioneer. Today, with the rise of AI applications relying on HBM, SK Hynix has become one of the early winners in the hardware field, although competition is intensifying and rival Samsung Electronics is trying to catch up.

Betting on HBM, SK Hynix's stock price has risen by more than 50% this year

In recent years, SK Hynix has successively released HBM2 (2018), HBM2E (2020), HBM3 (October 2021), and announced in August this year the successful development of the fifth-generation high-bandwidth memory HBM3E, a new product specifically designed for AI, and started providing samples to customers for performance verification.

Previously, it was reported that global tech giants including NVIDIA, AMD, Microsoft, and Amazon have sequentially requested HBM3E samples from SK Hynix. Applying for samples is a necessary procedure before placing an order, with the aim of clarifying whether the memory is compatible with the customer's GPU, IC, or cloud system.

SK Hynix stated that the new product can process up to 1.15TB of data per second, which is equivalent to processing the data of 230 full HD movies in one second. Mass production of HBM3E will begin in the first half of 2024. HBM uses a skyscraper-like structure to stack memory chips, with the fourth generation product achieving vertical stacking of 12 traditional individual DRAM chips, compared to 8 chips in the previous generation.

Achieving this feat requires inventing new methods for stacking and fusing chips. In the 12-layer stacked product, SK Hynix fills the gaps between layers with a liquid material, replacing the traditional method of applying a thin film between each layer. In the latest stacking process, the company uses high temperatures to ensure the chips are uniformly bonded together and compresses them with a pressure of 70 tons to fill the gaps.

Park Sung-wook said, "Memory chips are no longer just supporting actors in the computing field." In a written interview, he stated:

"Fundamentally, the development of storage technologies, including HBM, is laying the foundation for the future development of AI systems."

Since the beginning of this year, the entire memory chip industry has been severely depressed due to the decline in sales of smartphones and computers. SK Hynix has had a difficult year as its revenue still relies mainly on traditional memory chip business. The company reported a net loss of approximately $2.2 billion in the second quarter, indicating that its financial situation has not benefited much from its progress in high-bandwidth memory. In contrast, Nvidia's quarterly profit from May to July exceeded $6 billion.

However, its stock price continues to rise. Since the beginning of this year, SK Hynix's stock price has risen by a cumulative 53%, nearly three times the increase of Samsung Electronics during the same period, and higher than the approximately 30% increase of Micron Technology and Intel during the same period. Nvidia's stock price has more than doubled this year.

Can it maintain its lead?

SK Hynix cannot guarantee that it can sustain its leading position.

Harry Yoon, Vice President and Head of Memory Marketing at Samsung, said in a written interview that Samsung is preparing to launch the next generation of products later this year and is working to expand its partnerships with customers. Samsung is the world's largest memory chip manufacturer and plans to invest heavily to double HBM production by 2024.

According to TrendForce's data, it is expected that Samsung's market share will catch up with SK Hynix this year, with both companies' market shares reaching 46% to 49%. TrendForce also stated that Micron is expected to hold about 5% of the market share. However, Micron expressed confidence in catching up with its two Korean competitors. NVIDIA recently unveiled a new processor for accelerating computing and artificial intelligence, with plans to launch it in the second quarter of 2024. It is equipped with "the fastest memory in the world." However, the announcement did not mention the name of the supplier.

Industry experts believe that the company that best meets NVIDIA's requirements is SK Hynix.

SK Hynix has not disclosed how much investment has been made in high-bandwidth memory, nor has it released sales data for such chips. However, the company stated that this type of chip, including HBM, currently accounts for more than 20% of total DRAM sales, compared to single digits last year.

Park Myung-jai said that SK Hynix still has advantages in terms of development speed, chip quality, and mass production readiness. He said:

"Based on these advantages, SK Hynix intends to continue leading this market."