Seven-fold oversubscription, can SK Hynix save the semiconductor industry this time?

Original: Odaily Planet Daily (@OdailyChina)

Author: Azuma (@azuma_eth)

Bloomberg reported this morning, citing sources, that the subscription for SK Hynix's American Depositary Receipts (ADR) listed in the U.S. has been oversubscribed more than seven times, potentially becoming the largest foreign listing project in U.S. history.

Previously, at the end of June, SK Hynix submitted an F-1 prospectus to the U.S. SEC, planning to issue 177.9 million ADRs for a Nasdaq listing (each ADR represents one-tenth of a share of common stock). Based on the Korean market's Wednesday closing price of 2,076,000 won (approximately $1,380), the total fundraising amount is expected to reach around $24.5 billion. All proceeds will be used for production capacity expansion in South Korea, including the Yongin wafer fab, the Cheongju advanced packaging line, and investments in EUV and related equipment.

Semiconductor Sector Squatting as SK heads to the U.S.

Coinciding with SK Hynix's U.S. listing, the entire semiconductor sector is undergoing a sharp correction.

Over the past two years, AI infrastructure investment has been the core driver propelling the semiconductor sector upward. Benefiting from the continuously expanding capital expenditures of tech giants like Microsoft, Google, Meta, and Amazon, the industry chain represented by GPUs, HBM memory, and advanced process equipment has experienced an explosion in performance, driving stock prices higher and higher.

Recently, however, the market has begun to reassess the sustainability of this logic. First, Meta was reportedly planning to sell some of its idle computing power resources, interpreted by the market as a signal that tech giants are starting to optimize their AI infrastructure spending. Subsequently, Blackstone's originally planned world's largest data center project was also canceled, further strengthening market concerns about slowing demand growth for data centers.

While these events do not fully equate to the end of the "AI investment cycle," they have triggered the market to reprice a key question – after investments totaling hundreds of billions of dollars, can the AI capital expenditures of tech giants maintain their current growth rate?

Affected by this, the AI industry chain has generally come under pressure recently. From chips and storage to semiconductor equipment, the market's trading logic has shifted from "unlimited demand growth" to "whether future growth can still be realized." SK Hynix's stock price has also seen a significant correction, falling from a high of 2,917,000 won on June 25 to yesterday's closing price of 2,076,000 won, with a maximum drawdown of nearly 30%.

Secondary Market Under Pressure, Primary Market in a Frenzy

Interestingly, while the secondary market continues to adjust, SK Hynix's U.S. stock listing has garnered far more enthusiastic capital demand than expected.

As mentioned, the subscription multiple for this ADR offering has already exceeded seven times, indicating strong institutional interest. According to information disclosed in SK Hynix's roadshow materials, the subscription demand primarily comes from various institutions, including global long-only funds, technology-themed funds, sovereign wealth funds, and Asian-themed investors. Among them, institutions like Baillie Gifford, Coatue Management, and Situational Awareness Partners have expressed intentions to subscribe for a total of approximately $7 billion.

Note Situational Awareness here; this is the fund controlled by the newly emerging "AI stock guru" Leopold Aschenbrenner, arguably the fund with the most explosive performance this AI cycle. For details, see SBF's Little Brother Turned $225 Million into $5.5 Billion in One Year and A Quick Look at the 24-Year-Old 'AI Stock Guru's' Latest Portfolio: 60% Hedging Semiconductor Downturn.

The intense pursuit by institutions means that, at least from a long-term capital perspective, the market hasn't completely negated the AI infrastructure investment cycle. In fact, the recent correction in the semiconductor sector is essentially more of an adjustment in valuations and expectations rather than a reversal of industrial fundamentals. Investors are worried about a potential slowdown in the growth rate of future capital expenditures, not about whether core products like current-gen HBM and AI chips are losing demand.

Additionally, it's worth noting that a conjecture has been circulating in the market recently regarding the timing of SK Hynix's listing: going through a significant stock price adjustment before landing on the Nasdaq might be a strategy to ensure a smoother post-listing performance, leading to a win-win situation for the company, underwriters, institutions, and retail investors…

While this logic may not be fully verifiable, from a trading perspective, it could indeed reinforce optimistic expectations for the stock's post-IPO trajectory – for the issuer, a lower valuation starting point is conducive to post-listing price performance; for subscribing institutions, it also implies greater potential upside.

Therefore, SK Hynix's U.S. listing could very well become a significant turning point for market sentiment in the semiconductor sector in the short term.

For the True Reversal Signal, Watch the Next Report Cards of Tech Giants

However, the mere hot IPO of SK Hynix on the US stock market may not fully answer whether the correction in the semiconductor sector is over.

From an industry cycle perspective, the core of the current market debate isn't whether the demand for AI still exists, but whether tech giants can maintain their current level of capital investment. Over the past two years, companies like Microsoft, Google, Meta, and Amazon have continuously ramped up AI infrastructure construction, driving global data center investment into a phase of high-speed expansion. According to plans previously announced by major tech giants, AI-related capital expenditures are expected to remain high for the next few years.

However, alongside the expanding scale of investment, investors are increasingly focusing on "when these massive capital investments can translate into real commercial returns."

If AI application growth can match infrastructure investment, the current adjustment in the semiconductor sector looks more like a digestion of valuations after a rally. But if tech giants start to slow down data center construction and reduce the pace of GPU procurement, the high-growth expectations the market previously assigned to the AI industry chain will face revision. Therefore, the quarterly reports from tech giants over the next few quarters will be key to determining the direction of the semiconductor market.

In other words, the SK Hynix listing might serve as a short-term sentiment catalyst for the semiconductor sector, but what will truly determine whether the AI cycle can continue are the clear answers from tech giants like Microsoft, Google, Meta, and Amazon regarding their future capital expenditures.