SK hynix Could Close Its Valuation Gap Soon, Says Wedbush. That’s Good News for SKHY Stock.

South Korean memory giant SK hynix (SKHY) recently announced it will buy back $29 billion of its stock over the next three months, starting Aug. 20. The company’s robust capital return program also plans to return more than 50% of its free cash flow to shareholders. Wedbush analysts believe this move is a “positive” step that could help it close the valuation gap with its peers. Moreover, SK hynix could deliver an additional $130 billion in shareholder returns by 2027, supported by the continued rise in memory-chip prices. 

This is good news for SKHY stockholders. Now we take a closer look at the company…

About SK hynix Stock

SK hynix is a South Korean company that makes memory chips. Its main products are DRAM, NAND flash, and high-bandwidth memory used in smartphones, computers, servers, and AI systems. The company designs, produces, tests, and sells these chips worldwide. It has a market capitalization of $1.16 trillion. SK hynix is one of the world’s leading memory-chip makers and supplies products for data centers, cars, and electronic devices. Its headquarters is in Icheon, Gyeonggi Province, South Korea.

South Korea’s second-most valuable company was in high demand during its American depository shares (ADRs) IPO on Nasdaq last month. The shares gained 13% intraday on their first day. As memory demand continues to increase with the growth of AI infrastructure, the company’s rapid rise has been unprecedented. In fact, over the past year, SK Hynix’s valuation rose more than sevenfold. 

SK hynix’s stock has risen marginally 0.16% over the past month because investors expect strong growth from artificial-intelligence demand. However, profit-taking after a strong rally, as investors reduced exposure to AI-related semiconductor names, has pushed the stock down 9.67% over the past five days. It reached a one-month high of $178.43 on Aug. 17, but is down 13.1% from that level. 

On a trailing-12-month basis, SK hynix’s price-to-sales ratio of 7.15 times is pricier compared to the industry average of 3.73 times. 

SK hynix Reported Strong Q2 Results on Robust AI Memory Demand

Memory's importance to AI infrastructure and high-performance AI server products can't be overstated, driving price increases and creating a huge upsurge for SK hynix. Its second-quarter revenue increased by 257% year-over-year (YOY) to KRW 79.32 trillion ($56.87 billion). 

The top-line surge was also strongly reflected in its bottom line. Its operating margin increased by 35 percentage points to 76%. Net income rose by a whopping 1,242% to KRW 93.92 trillion ($67.35 billion). 

The company is also signing multi-year contracts to secure mid- to long-term supply stability. SK hynix has signed long-term agreements with approximately 10 customers, including important strategic partners, while continuing negotiations with other major industry clients.

For the current year, Wall Street analysts expect SK hynix’s EPS to reach $25.48, followed by a 27.4% improvement to $32.46 in the next fiscal year. 

Improving Credit Ratings

S&P raised SK hynix’s long-term issuer credit rating from ‘BBB+’ to ‘A-.’ The company’s operating performance is expected to strengthen significantly over the next two years, supported by strong memory-chip sales, high profitability, and solid operating cash flow. S&P expects SK Hynix’s strong operating performance to extend well into 2028. 

Back in April, Fitch Ratings upgraded SK hynix’s Long-Term Foreign-Currency Issuer Default Rating (IDR) and senior unsecured rating to ‘BBB+’, from ‘BBB,’ citing an improved financial profile, with positive free cash flow and a stronger balance sheet. 

What Analysts Think About SK hynix’s Stock

Recently, JPMorgan analyst Jay Kwon recommended investors accumulate more SK hynix stock, saying the stock may see positive sentiment after the company announced its nearly $29 billion buyback. Kwon also expects SK Hynix to pursue more shareholder return measures over the next couple of years. According to a Bloomberg report, JPMorgan analysts maintained an “Overweight” rating on SK Hynix, expecting $130 billion in shareholder returns over the next year. 

Chip giant SK hynix is a widely followed name on Wall Street, with analysts awarding it a consensus “Strong Buy” rating. Of the 15 analysts rating the stock, a majority of 11 analysts have given it a “Strong Buy” rating, two analysts rated it “Moderate Buy,” while two analysts are taking the middle-of-the-road approach with a “Hold” rating. The consensus price target of $245.40 represents a 57.5% upside from current levels. Moreover, the Street-high price target of $320 reflects a 105.4% upside.