Shares in SK Hynix Inc slid by the most in 20 months after a rout in tech stocks, overshadowing strong financial results for the supplier to Nvidia Corp in the June quarter.

The company, which produces chips that help train artificial intelligence (AI) models, reported sales that more than doubled to 16.4 trillion won (US$11.9 billion or RM55.27 billion), ahead of analyst estimates. Operating profit in the three months to June also beat expectations, coming to 5.47 trillion won with an operating margin of 33%.

But SK Hynix’s stock fell as much as 7.8% on Thursday in Seoul, the biggest intraday decline since November 2022. That followed a broad sell-off in tech stocks in the US - including a 6.8% drop for Nvidia - as investors grow skittish about inflated valuations of AI-related companies. Samsung Electronics Co, which is struggling to break into the lucrative high-end memory market, fell 2.2%. 

Concerns are growing that AI and data centre spending will decelerate from its frenetic pace, unless companies like Microsoft Corp and Alphabet Inc can generate significant revenue from their enormous investments. This week, Morgan Stanley cut AI chip-sector stocks including SK Hynix and Taiwan Semiconductor Manufacturing Co from its focus lists, warning that it may be time to take a breather. 

SK Hynix has been one of the main beneficiaries of a race to supply components essential to creating ChatGPT-like generative AI services. The company will “closely analyse customer demand and profitability” to make sure its capital spending is within its operating cash flow, the company said in a statement. It had said in May that its capacity to make high-bandwidth memory (HBM) chips was almost fully booked through 2025. 

HBM chips, which are paired with Nvidia’s accelerators, were a key growth driver for SK Hynix in the quarter. Revenue for its high-bandwidth memory surged more than 250%.

“It’s all about HBMs and enterprise solid-state drives,” said Greg Roh, an analyst with Hyundai Motor Securities Co. 

That helped power a 47% gain in SK Hynix’s stock from the start of the year to Wednesday’s close, a rally mirrored by many of the AI sector’s emerging new leaders. But that global stock boom remains in peril, as investors reassess the potential for further gains, amid looming central bank policy shifts and the US presidential election. Some analysts warned that the hype over untested AI applications was driving outsized market gains with AI technology yet to reach its full potential.

There are concerns “that cloud hyperscalers capital expenditure growth this year may not see further upside, while the revenue growth from generative AI applications is trending below expectations”, Sanjeev Rana, an analyst at CLSA Securities Korea Co, said.

SK Hynix said its own capital expenditure this year would likely top earlier plans to keep up with a boom in spending on AI hardware. The company plans to mass produce its next-generation 12-layer HBM3E chips this quarter, and start supplying an unidentified customer in the fourth quarter. 

That suggests it can widen its lead over rivals Samsung and Micron Technology Inc in designing and supplying the high-end memory that powers Nvidia’s AI accelerators. Top-of-the-line HBM3E products would make up about half the volume of all its HBM chips this year, it said.

SK Hynix has earmarked some US$15 billion in South Korea to meet surging demand for high-end chips, on top of a plan to spend US$3.9 billion on an advanced packaging plant and research centre for AI products in Indiana.

  - Bloomberg