Global investment bank UBS has issued its first analysis report on SK Hynix's American Depositary Receipts (ADR), recommending a 'Buy' rating and setting a target price of $204. The firm believes that the current stock price does not adequately reflect the growth potential driven by the expansion of artificial intelligence (AI).
According to Investing.com on July 30, UBS analyst Nicolas Godoy forecasts a 36% increase in DRAM demand for next year, significantly higher than this year's expected growth of 22%. The demand for NAND flash is also projected to rise from 20% this year to 23% next year.
UBS analyzed that the rise of 'agentic AI,' which can perform tasks autonomously without human direction, will boost demand across the memory market, extending beyond high-bandwidth memory (HBM). Increased investments in AI servers and PCs are expected to drive up DRAM demand, along with a corresponding rise in NAND flash usage for data storage.
The firm anticipates that the memory supply shortage will persist for the time being, particularly noting that DRAM supply may not keep pace with demand until 2028.
UBS positively assessed SK Hynix's rapid expansion of long-term supply contracts with major customers. The company has secured approximately ten long-term contracts, including agreements with large U.S. cloud providers and key manufacturers. Negotiations for HBM supply are also underway for 2027 and beyond.
While UBS noted that these long-term contracts might limit short-term price increases in memory, they are expected to contribute to stable revenue generation and increased shareholder returns in the long run.
The recent decline in stock prices has enhanced its attractiveness, according to UBS. The firm estimates that the long-term return on equity (ROE) for SK Hynix is currently reflected at about 17.7%. This figure is less than half of UBS's projected average ROE of 40.2% for the years 2027 to 2031, indicating that the current stock price undervalues SK Hynix's future profitability.
Godoy stated, 'The current corporate value does not adequately reflect the structurally increased memory profitability, enhanced free cash flow generation, and expanded shareholder returns.'
When UBS set its target price, the last closing price for SK Hynix ADR was $126.79, suggesting a potential upside of about 61% to reach the target price of $204.
On the same day, SK Hynix ADR closed at $149, up 17.5%, buoyed by a strong performance in semiconductor stocks. Based on this closing price, the potential upside to UBS's target price is approximately 37%.
* This article has been translated by AI.
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