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Multiple uncertainties clearing at once

Strong earnings momentum to continue amid robust DRAM conditions

We maintain our Buy rating on SK Hynix with a target price of W2,800,000. Recent updates from the company’s customers and competitors point to an increasingly favorable environment for both its operations and valuation. The stock is currently trading at a 12-month forward P/B of 2.0x and P/E of 3.9x, back at pre-AI boom levels. We believe current levels offer an attractive buying opportunity.

We forecast earnings to continue growing through next year, with operating profit reaching W79tr in 3Q26 and W409tr in 2027. We expect DRAM supply/demand conditions to remain tight through 2028, with price increases for HBM continuing to drive overall DRAM ASP growth. On top of stronger and more stable earnings, a series of positive developments are emerging that could support a valuation re-rating.

Favorable developments in the external environment

On Aug. 10, Nvidia announced partnerships with six financial institutions, including BlackRock, KKR, and Blackstone, to establish AI infrastructure financing platforms aimed at mobilizing over US$500bn in third-party capital. The planned platforms would channel capital from insurers, pension funds, and private credit into loans to data center operators, with equipment such as GPUs serving as collateral. Nvidia stated that it may provide residual-value support of up to 25% for certain transactions.

This initiative should enable financial institutions to create new investment products backed by medium/long-term, usage-linked cash flows from GPU computing infrastructure. As access to financing emerges as another key constraint on AI investment (alongside GPU availability), the platforms should allow less well-capitalized neocloud providers and sovereign AI projects to purchase Nvidia systems at lower financing costs. The amount of capital mobilized could expand further depending on the interest rate environment.

During its recent Investor Day, Sandisk guided mid- to high-teen revenue growth and a 75% OP margin for FY2028?30, with plans to return 100% of excess cash (after investing back into the business) to shareholders. We believe this underscores the memory business’s potential for sustainable cash generation.

The value of SK Hynix’s Kioxia-related investment also warrants attention. Following the liquidation of one of its Kioxia investment vehicles, SK Hynix is estimated to have generated nearly W40tr in cumulative gains. Separately, the company holds bonds convertible into virtually all of the voting rights in the SPC that is now Kioxia’s largest shareholder. Any dividends paid by Kioxia beginning this year should accrue to the SPC, regardless of whether SK Hynix converts the bonds.