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Beneficiary of surging AI data center orders

Sustained high profitability to support a higher P/B multiple

We maintain our target price for SK Hynix at W2,700,000, which we derived by applying a P/B of 4.5x―the global memory sector average as of May 7―to our 12-month forward BPS of W596,154. Supported by structurally higher memory pricing and increased long-term supply agreements, we project the firm’s average 2026-28 ROE to reach 66% (vs. 19% over the past decade), justifying a higher P/B multiple.

We look for 2Q26 operating profit of W64.5tr (+71.6% QoQ), supported by DRAM and NAND ASP growth of +37% and +30%, respectively, and bit growth of +9% and +15%, respectively. With HBM4 shipments set to begin in 2H26, we forecast HBM revenue at W54tr (+72% YoY) for 2026 and W75tr for 2027 (2027 HBM ASP growth projected at +20%). We project overall operating profit at W279tr for 2026 and W398tr for 2027.

Sharp rise in long-term order commitments across the AI value chain

AI cloud provider CoreWeave saw a sharp increase in its 1Q26 backlog (US$99.4bn; +49% QoQ). Its customer base is also becoming more diversified; in addition to LLM-related demand, orders related to physical AI have exceeded US$1bn, while the number of customers with commitments above US$1bn has reached 10. To fulfill this backlog, CoreWeave plans to invest up to US$35bn in capex in 2026 (+135% YoY).

Google Cloud and Amazon Web Services also saw their 1Q26 backlogs surge to US$468bn (+93% QoQ) and US$365bn (+49% QoQ), respectively, equivalent to 23x and 10x their quarterly revenues. These massive backlog levels help explain why big tech and AI cloud companies have continued investing aggressively despite sharp declines in near-term free cash flow.

Furthermore, expanding long-term backlogs at data center customers should increase the importance of securing stable long-term memory supply. Notably, after signing three long-term supply agreements in 1Q26, SanDisk disclosed a US$41.6bn backlog, equivalent to 28x its quarterly data center segment revenue (US$1.5bn). SK Hynix is also understood to be engaged in similar discussions, though the scale of potential agreements may differ.

As the share of long-term supply agreements in the memory industry increases, suppliers could forgo some upside from future price increases. Ultimately, however, uncertainty in demand projections undermines the efficiency of supply strategies. In our view, greater earnings visibility and more stable capital allocation should allow medium/long-term ROE to remain structurally higher than in previous cycles.