SEOUL, July 29 (AJP) - SK hynix achieved something no major semiconductor company has done before: it became the world's most profitable chipmaker – albeit with little fanfare.
Its record-breaking 76.1 percent operating margin in the second quarter surpassed those of Taiwan Semiconductor Manufacturing Co. (TSMC) and Micron Technology, demonstrating how an early bet on artificial intelligence memory has turned the South Korean company into the industry's earnings powerhouse.
Yet investors focused instead on what it failed to deliver.
Shares plunged more than 16 percent during Wednesday session -- their steepest one-day decline on record -- after operating profit fell just short of lofty market expectations, despite nearly doubling from the company's previous quarterly record set only three months earlier.
The stock was at 1,354,000 as of 2:00 p.m. down more than half from its all-time high of 2,987,000 won reached on June 25.
The great selloff underscored how expectations for AI winners have risen almost as quickly as their profits.
SK hynix generated a 76.1 percent operating margin in the April-June quarter, comfortably ahead of TSMC's 60.3 percent in its June quarter and Micron's roughly 52 percent on a non-GAAP basis in its latest reported quarter.
Samsung Electronics which reports its final second-quarter results also is expected to deliver a chip-making profit margin of more than 60 percent.
All the frontier chipmakers have benefited from the AI infrastructure boom, but their profit engines are fundamentally different.
TSMC dominates contract manufacturing for advanced processors designed by customers such as Nvidia and Apple. Micron has expanded its position in high-bandwidth memory while maintaining broad DRAM and NAND flash businesses.
SK hynix singularly has concentrated on the most profitable segment of the AI supply chain: HBM, the premium memory stacked alongside AI accelerators that has become one of the industry's biggest bottlenecks.
HBM commands premium pricing because of its technological complexity, advanced packaging requirements and close collaboration with AI chip designers throughout development.
Unlike commodity DRAM, where prices largely fluctuate with supply and demand, HBM pricing is shaped by technology leadership and scarcity.
That distinction is critical. Profitability in HBM depends less on manufacturing efficiency than on being first to commercialize each new generation while supply remains constrained.
SK hynix widened that advantage by becoming the first company to mass-produce HBM3E and beginning volume shipments of next-generation HBM4 during the second quarter. It has also completed sample deliveries of HBM4E and remains on track for mass production in 2027.
Being first to scale a new HBM generation allows a supplier to establish pricing before rivals qualify competing products. With Samsung Electronics and Micron still progressing through qualification for their latest HBM offerings, SK hynix has operated in a market with considerably less direct competition than the industry's "three-way HBM race" often implies.
The company's advantage extends beyond manufacturing.
HBM is not purchased from a standard price list. Instead, it is co-developed with AI accelerator makers—chiefly Nvidia—months or even years before commercial production, tied closely to each processor roadmap.
Those relationships create high switching costs and long-term supply commitments, making HBM revenue considerably more predictable than conventional DRAM, where customers can change suppliers relatively easily and prices are driven largely by spot-market conditions.
Defending the AI investment narrative
During Wednesday's earnings conference call, SK hynix dismissed concerns that improving AI model efficiency could reduce demand for AI infrastructure.
"We view these developments not as a slowdown in AI investment, but as a transition toward improving the utilization and monetization of AI infrastructure built over the past several years," the company said.
The company expects spending by hyperscale cloud providers to remain robust beyond next year, arguing that temporary delays caused by power shortages or slower data-center construction will not alter the long-term trajectory of AI investment.
Reflecting that confidence, SK hynix reaffirmed plans to invest more than 40 trillion won this year to expand manufacturing capacity.
"Our capacity expansion is based on demand visibility secured through long-term customer partnerships and will be carried out in stages with investment efficiency in mind," the company said.
After rallying nearly 400 percent over the past two years, SK hynix had become one of the market's highest-conviction AI trades.
Investors were pricing in continued margin expansion and another earnings beat.
Even a modest miss against consensus was enough to trigger profit-taking, despite the company posting one of the strongest quarterly results ever recorded by a semiconductor manufacturer.
Some analysts also believe the market is beginning to look beyond today's record margins.
Memory remains the semiconductor industry's most cyclical business, and extraordinary profitability inevitably attracts additional investment.
As Samsung and Micron qualify HBM4 and HBM4E products and industry capacity expands, investors are increasingly debating how long today's scarcity-driven pricing can last.
The durability question
For decades, memory profitability rose and fell with commodity pricing cycles.
In the AI era, however, earnings are increasingly determined by leadership in specialized products such as HBM, where technology, customer relationships and ecosystem integration matter as much as manufacturing scale.
Whether SK hynix can sustain its exceptional lead is the next question.
Unlike TSMC's foundry business, whose moat has been built over decades of process-node leadership, SK hynix's HBM advantage is inherently more cyclical. Its lead is measured in product generations rather than decades, making investors increasingly focused on when rivals will catch up rather than how far ahead the company is today.
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