The stock price of South Korea's SK Hynix, the main supplier of Nvidia (NVDA.US), has risen by more than 90% over the past year, and Wall Street expects the company's stock price to rise further.
Over the past month, at least 19 analysts raised their forecasts for SK Hynix for reasons including the huge potential of the artificial intelligence business and the possibility of surprises in this month's earnings report. The company is Nvidia's largest supplier of high-bandwidth storage (HBM) chips for artificial intelligence products.
Goldman Sachs raised the target price of SK Hynix to 0.29 million won ($210) on Tuesday, which means the stock may rise 25% from the closing price of the day. Citi raised its target price to 0.35 million won last week, which is more than 50% higher than the current stock price.
SK Hynix's earnings per share rose the highest among Asian chip stocks
Roh Jongwon, chief investment officer at Infinity Global Asset Management in Seoul, said: “The current stock price does not fully reflect the potential of HBM chips. The market values HBM in the same way as traditional memory chips, but HBM's profitability is almost double that of traditional memory chips.”
SK Hynix will announce its second-quarter results on July 26. The market predicts that operating profit will reach 5 trillion won, the highest level in six years. As demand for high-end devices using artificial intelligence drives up the price of memory chips, SK Hynix is expected to reverse last year's loss situation.
According to Bloomberg data, Citi's target price of 0.35 million won is the most optimistic price predicted by analysts.
Peter Lee, head of global technology and communications at Citigroup Global Markets Korea Securities Co., Ltd., said that since the world is not yet familiar with the potential of artificial intelligence, the demand for HBM may not have been fully reflected, and he quoted early smartphone launches. “Because it's a market that didn't exist in the past, we've never seen how far it can go.”
More and more expensive
However, some investors said there are reasons to be cautious as the price-earnings ratio rises. According to data compiled by Bloomberg, SK Hynix's current stock price is 2.9 times its book value, the highest level since at least 2011.
Seoul DS Asset Management Co. Fund manager Yoon Joonwon said, “As far as valuation is concerned, we have entered uncharted territory. I think the company's earnings this year and next will exceed market expectations, but the market is still uncertain about this.”
Investors are also starting to get nervous.
SK Hynix's stock price fell 4.7% on Thursday. Earlier, South Korean media reported that Samsung Electronics will soon begin negotiations with Nvidia to supply its own version of HBM chips to the US company. Samsung later denied the reports.
After SK Hynix announced plans to invest 75 billion dollars by 2028 on June 30, there are also concerns that there may be an oversupply of memory chips. Increased production could drive down chip prices and raise concerns about a downturn in the storage industry.
Citigroup's Lee said, “Since this is a path no one has set foot on, fluctuations are inevitable.”