Analysts are so bullish on this global chip stock they keep naming it as their top pick
One stock frequently showed up among analysts’ top calls this month: South Korean chipmaker SK Hynix . SK Hynix is the world’s second-largest memory chipmaker and boasts Nvidia — the leader of the artificial intelligence pack — as one of its key clients. Memory chips have been in the spotlight as AI ramps up, as they are used in graphics processing units, which underpin most generative AI tools. SK Hynix’s advanced chips, such as high bandwidth memory (HBM) chips, are in high demand for use in GPUs made by Nvidia and others. UBS, in a Jan. 15 note on edge AI driving the next leg of generative AI growth, named SK Hynix as one of its top picks to tap the trend. Edge AI involves running AI algorithms directly on a user’s device, be it a smartphone, laptop or wearable, among other things. SK Hynix will benefit from higher memory needed on AI-enabled smartphones and PCs, UBS said. HSBC in a Jan. 23 note named SK Hynix as one of its top four buy ideas. It says the industry is “at the brink of a memory price upcycle.” “Hynix is our preferred stock in the memory sector, as being a pure-play we think that Hynix will be the key beneficiary of the memory upcycle,” the bank said. HSBC also expects a “steeper” earnings turnaround, as well as strong DRAM demand with ongoing AI server investment. DRAM, or dynamic random access memory, is a type of semiconductor memory needed for data processing. In December, HSBC raised the price target for the stock from 150,000 Korean ($112) won to 180,000 Korean won ($134). Trent Masters, global portfolio manager at Alphinity Investment Management, says smartphones are “tightening up” memory markets, and named SKY Hynix as one of his four “top conviction calls” across various sectors. “Combine this with demand for [high bandwidth] and I think you have a much tighter DRAM market than what the market expects,” he told CNBC on Jan. 15. “SK Hynix have been in the right place at the right time; their HBM development took a leadership position as demand exploded and Samsung struggled. So they are well placed into 2024.” Financial services firm Daiwa Capital Markets also upgraded SK Hynix’s price target in a Jan. 4 note, from 155,000 Korean won to 175,000 Korean won. It forecast that the firm will record a “sharp rebound” in earnings in the second half of this year, led by the memory upcycle. “We also expect positive impact from ongoing AI demand on expanding On-device AI adoption. While we assume continued robust HBM earnings, we note intensifying competition in 2024,” said Daiwa. SK Hynix last week reported fourth-quarter earnings that surpassed expectations. It reported an operating profit of 346 billion won for the October-December quarter that beat an expected 192 billion won operating loss and marked its first operating profit since the third quarter of 2022. The company also said it will focus on high-end memory semiconductors used in artificial intelligence chipsets this year. For global investors who wish to buy SK Hynix shares, its shares are listed on the Korea Stock Exchange and its depository receipts are listed on the Luxembourg Stock Exchanges. Investors can also buy into SK Hynix via the ETF route. It takes up 7.9% of the Franklin FTSE South Korea ETF, and 7.1% of the iShares MSCI South Korea ETF. — CNBC’s Michael Bloom contributed to this report.
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