The ADR listing is expected to total $29 billion (approximately 44 trillion won), potentially marking the largest issuance of U.S. stock by a foreign company in history. This listing is seen as a strategy to directly tap into the growing AI memory investment enthusiasm in the U.S. market. Historically, SK hynix has been valued lower than U.S. memory chip maker Micron. However, increasing investments in AI data centers and a surge in demand for high-bandwidth memory (HBM) are drawing more attention from global investors to SK hynix.
For U.S. investors, direct investment in SK hynix has been challenging. Purchasing shares listed on the Korean stock market required trading outside regular U.S. hours, while non-sponsored ADRs traded in the over-the-counter market had limited liquidity. Bloomberg noted that the Nasdaq listing could resolve these accessibility issues and help mitigate the factors contributing to SK hynix's undervaluation.
Market observers are keen to see if SK hynix can narrow the valuation gap with Micron through its U.S. listing. According to Bloomberg, SK hynix is currently trading at a price-to-earnings ratio (P/E) of about 6.2 times its projected earnings for the next 12 months. In contrast, Micron's P/E ratio has recently adjusted to around 7 times, down from over 11 times as of June 22.
De Zhou, a portfolio manager at Sunberg Investment Management, stated, "This offering targets investors who find it difficult to access the Korean stock market. The Nasdaq listing for SK hynix provides a direct and frictionless investment opportunity in the AI memory cycle."
Expectations for Index Inclusion
The U.S. listing is also raising expectations for potential inclusion in major indices. If SK hynix is added to indices like the Nasdaq-100, it could attract buying demand from passive exchange-traded funds (ETFs) that track those indices. For instance, the Invesco QQQ Trust, which tracks the Nasdaq-100, has assets under management totaling $482 billion.
However, the inherent volatility of the memory industry poses a concern. Memory semiconductors typically see rapid price and profit increases during periods of high demand, but they face price declines and inventory challenges when supply increases and demand wanes. Just three years ago, both Micron and SK hynix reported losses due to a slowdown in demand that caused memory prices to plummet.
The U.S. listing is also expected to generate arbitrage opportunities. If price discrepancies arise between the Nasdaq-listed ADR and shares listed in Seoul, hedge funds may engage in trading to capitalize on these differences. Bloomberg noted that similar trading occurred during the U.S. listings of Alibaba and TSMC.
It remains unclear whether conversions between SK hynix's ADR and its Korean-listed shares will be freely allowed. If conversions are unrestricted, price differences between the two markets may be limited. However, if restrictions are in place, the U.S. ADR could continue to trade at a premium.
For instance, TSMC's ADR has traded at an average premium of over 21% compared to its local shares over the past year and currently maintains a premium of about 13%.
Wall Street analysts believe that SK hynix's ADR has significant potential to absorb AI investment demand. Kim, Chief Investment Officer at Forest Boke Capital Partners, remarked, "Many investors have yet to enter this field. When SK hynix enters the market, it can attract those who have not yet invested."
* This article has been translated by AI.
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