SK Hynix (NASDAQ:SKHY) reported record quarterly earnings on Wednesday, but its shares tumbled nearly 10% after the results fell short of elevated market expectations, fuelling concerns that spending on artificial intelligence infrastructure by major technology companies could begin to slow.
The South Korean memory chip maker, a key supplier to Nvidia, is also pursuing more long-term supply agreements as it looks to reduce exposure to the semiconductor industry’s cyclical demand swings.
Record Earnings Overshadowed by Revenue and Profit Miss
The company posted a record operating profit that increased more than sixfold from a year earlier. However, management said delays in shipments of certain advanced products limited pricing gains for its core dynamic random access memory (DRAM) business.
Investors reacted negatively, sending SK Hynix shares down 9.6% by the close of trading on Wednesday, while South Korea’s benchmark KOSPI index declined 6%.
“There are concerns that tech firms will take a breather in infrastructure spending,” said Lee Min-hee, an analyst at BNK Investment & Securities.
Analysts also pointed to disappointment over the company’s lack of detailed plans for increasing shareholder returns and concerns that expanding the use of long-term supply agreements could limit future upside in memory chip pricing.
Although the stock has fallen by more than half since reaching a record high last month, it remains approximately 115% higher for the year.
AI Memory Demand Remains Strong
Despite the market reaction, SK Hynix maintained that demand for artificial intelligence memory chips remains robust.
“Major customers are still requesting more memory supply,” SK Hynix President Song Hyun-jong said during the company’s earnings conference call, adding that the company is pursuing additional long-term supply agreements to better manage fluctuations in chip prices.
The strategy reflects an effort to convert today’s AI-driven demand into longer-term revenue visibility amid concerns that investment in AI infrastructure could eventually moderate.
According to the company, these agreements typically span five years and include financial protections, such as customer deposits, to support contract execution. SK Hynix said it has already completed negotiations on around 10 long-term agreements and continues discussions with other major customers.
Capital Spending Set to Increase
The agreements come as investors question whether major hyperscale technology companies, including Microsoft, Alphabet, Amazon, Meta Platforms and Oracle, will be able to sustain hundreds of billions of dollars of planned investment in AI infrastructure.
Reflecting confidence in future demand, SK Hynix announced plans to increase capital expenditure to the high-40 trillion won range this year, compared with 30.2 trillion won in 2025.
Management dismissed concerns that additional investment could create excess supply, saying production capacity would continue to be aligned with market demand.
“With major tech companies increasing their AI infrastructure investments, additional supply requests continue to mount,” the company said. “As these investments are supported by revenue generated from AI services, the momentum in memory demand is expected to persist.”
Analysts noted that while long-term agreements improve visibility over future sales, they may also reduce opportunities for stronger short-term pricing, contributing to the earnings shortfall.
They also highlighted SK Hynix’s relatively large exposure to high-bandwidth memory (HBM), where price increases have been less pronounced than in conventional memory products.
Meanwhile, larger rival Samsung Electronics is expected to release its quarterly results on Thursday after previously forecasting a 19-fold increase in second-quarter operating profit.
“Samsung has greater pricing power and has raised prices more aggressively than SK Hynix,” said Lee Su-rim, an analyst at DS Investment & Securities.
Strong Cash Position Strengthens Balance Sheet
SK Hynix’s financial position continued to improve, with net cash reaching 88 trillion won at the end of June. The company said it aims to increase that figure to more than 100 trillion won to strengthen operations and respond more effectively to customer demand.
As cash reserves approach management’s long-term target, investors are increasingly focused on how those funds will be allocated.
Kim Sunwoo, senior analyst at Meritz Securities, said shareholders are looking for greater clarity regarding future capital allocation.
SK Hynix said it is not yet in a position to provide details on the timing, size or structure of its shareholder return policy but expects to announce those plans later this year.
“SK needs to come up with a concrete shareholder return policy to turn around investor sentiment,” said Greg Roh, head of research at Hyundai Motor Securities.
Quarterly Results Miss Market Forecasts
For the April-to-June quarter, SK Hynix reported operating profit of 60.5 trillion won, up sharply from 9.2 trillion won a year earlier but below the 64 trillion won forecast compiled by LSEG SmartEstimate.
Quarterly revenue rose 257% year over year to 79.3 trillion won, missing analyst expectations of 84 trillion won.
Market analysts said the weaker-than-expected performance primarily reflected slower shipments of HBM4 memory products, delaying revenue recognition during the quarter.
Net profit surged more than thirteenfold to 93.9 trillion won, supported by 63.3 trillion won in gains on investment assets. The company did not disclose additional details.
Analysts believe those gains largely reflect the completion of the sale of SK Hynix’s investment in Japanese NAND flash memory manufacturer Kioxia, following the disposal of its stake last month.
SK Hynix originally invested approximately 4 trillion won in Kioxia in 2018 through a Bain Capital-led consortium of U.S., Japanese and South Korean investors, participating via two special purpose vehicles.