Profit Soars 557%, Yet Stock Still Plummets: Is SK Hynix's Memory Bull Market Still Here?

Profit surged 557% year-over-year, with an operating profit margin of 76%, both setting new historical records.

For any manufacturing company, these would be almost fantastical numbers, but SK hynix achieved them: Q2 revenue reached 79.32 trillion KRW, up 51% quarter-over-quarter and 257% year-over-year; operating profit hit 60.54 trillion KRW, up 61% quarter-over-quarter and 557% year-over-year, both setting new all-time highs.

However, after the earnings report was released, SK hynix's stock price plummeted over 15% during intraday trading.

The reason isn't complicated. The market had expected revenue of around 84 trillion KRW and operating profit of about 64 trillion KRW. The actual results were slightly below expectations. In other words, SK hynix didn't deliver a poor earnings report, but one that was nearly perfect—yet failed to meet the market's "super perfect" expectations.

This is also a common challenge facing AI hardware assets recently.

When the market already knew revenue would grow, prices would rise, and profits would break records, simply having "very good results" is no longer enough. Investors now need confirmation of how fast profits can continue to exceed expectations and how long this memory bull market can last.

1. Numbers Remain Strong, Below Expectations Doesn't Necessarily Mean Weakening Demand

Let's first look at the core business.

In Q2, SK hynix's operating profit margin further improved from 72% in Q1 to 76%, a sequential increase of 4 percentage points. This means the company not only sold more memory products but also saw improvements in product prices, sales mix, and unit profitability.

Disclosed during the earnings call, Q2 DRAM average selling prices rose approximately 30% quarter-over-quarter, NAND average selling prices rose about 50%, enterprise SSD revenue doubled quarter-over-quarter, and Solidigm's revenue from high-capacity enterprise SSDs over 30TB grew more than two-fold quarter-over-quarter.

Simply put, it's no longer just one product driving SK hynix's profitability.

HBM, AI server DRAM, enterprise SSDs, and traditional memory price increases are all playing a role together. With a higher proportion of high-value products, coupled with rising memory prices and amortized fixed costs, this has created extremely strong operating leverage— each additional increment of revenue translates into a higher proportion of operating profit.

So, why was operating profit still below market expectations?

In the earnings call, the company explained that shipments of some high-value-added products were delayed to the second half of the year, and changes in the product mix also dragged down the blended average selling price. Therefore, as HBM4 shipments formally expand in H2 and 1c process (sixth-generation 10nm-class) DRAM gradually ramps up, these impacts are expected to ease.

Here, we need to distinguish between two completely different scenarios:

• If the results missed expectations due to order cancellations, rising inventory, or a sudden weakening of end demand, it could signal a cyclical turning point;
• But if it's merely a deferral of revenue recognition for high-value products, then this quarter's "lower earnings" could theoretically translate into incremental gains in the second half of the year.

Based on currently disclosed information, this miss seems closer to a shift in the pace of product realization rather than a breakdown in demand logic.

Furthermore, the Q2 net profit of 93.92 trillion KRW cannot be directly viewed as SK hynix's core operating profitability.

Non-operating income for the quarter reached 62.2 trillion KRW, including approximately 63.3 trillion KRW from investment asset sales and valuation gains. The market widely believes this includes gains from the disposal of investments related to Kioxia. Therefore, the true measure of the memory business's operating capability remains the 60.54 trillion KRW in operating profit, not the net profit exceeding revenue.

In summary, after excluding one-time investment gains, this remains an extremely strong earnings report. The problem lies only in the fact that the market is no longer satisfied with "extremely strong."

2. HBM4 Begins to Deliver, Memory Demand is Broadening

More noteworthy than exactly how much less SK hynix earned in Q2 is how its growth engines are changing.

Firstly, HBM4.

SK hynix confirmed that HBM4 began volume production and shipment in Q2, with output set to increase in the second half of the year. HBM4E also completed customer sample deliveries in the first half.

The company stated that existing HBM4 products have achieved customer-required operating speeds while possessing high energy efficiency, yield rates, and cost competitiveness. This indicates that HBM4 is formally transitioning from customer validation, order expectations, and technical narratives into the revenue realization phase.

Although the deferral of some HBM4 shipments was one reason for the Q2 miss, it also leaves clearer growth space for the second half. The company expects Q3 DRAM shipments to grow approximately 10% quarter-over-quarter, while NAND shipments are expected to achieve low single-digit growth. SK hynix is actively trying to use long-term supply agreements to reduce cyclical volatility in the traditional memory industry.

Data shows the company has completed long-term agreement negotiations with approximately 10 customers and is continuing discussions with other major clients. These contracts are typically based on a five-year term, including long-term purchase commitments and potentially performance mechanisms like deposits. Pricing structures will vary depending on the customer, product, and market conditions, balancing price stability with market flexibility.

While long-term agreements don't mean memory prices will only rise from now on and might sacrifice some short-term flexibility during rapid spot price increases, they can secure more stable purchase commitments, production planning, and cash flow visibility. For an industry long plagued by the cycle of "price increases – concentrated capacity expansion – inventory glut – price collapse," this change itself is part of improving earnings quality.

More importantly, this round of demand is no longer limited to HBM around GPUs.

As we know, past discussions about SK hynix were almost exclusively about HBM. However, this earnings report shows that growth is now spreading to traditional memory.

In Q2, SK hynix saw simultaneous growth in sales of AI server DRAM, enterprise SSDs, and SOCAMM2. Products using the 1c process began formal shipments. For NAND, 321-layer products have become the highest proportion of output, and the company plans to increase this to about 50% of its domestic (South Korea) production capacity by year-end.

The logic behind this isn't complex.

HBM provides high-bandwidth data to GPUs. Server DRAM handles larger memory capacity and agent operation requirements. Enterprise SSDs provide long-term storage for model data, inference results, databases, KV Cache, and data lakes. As training scales grow, more HBM is needed. As inference requests increase, it simultaneously drives demand for server DRAM and enterprise SSDs.

SK hynix also disclosed that enterprise SSD revenue doubled quarter-over-quarter and that it is developing new products targeting KV Cache offloading and near-GPU storage.

This means SK hynix's investment thesis is evolving from a single "HBM leader" to a full-stack AI memory platform covering HBM, server DRAM, enterprise SSDs, and advanced NAND.

This is the most optimistic signal in this earnings report: growth is not solely dependent on one star product but is spreading across a broader memory hierarchy.

Of course, traditional memory is also the biggest source of cyclical risk in this upturn.

HBM supply expansion is relatively slow due to constraints from customer qualification, advanced packaging, and customized requirements. However, once prices for regular DRAM and NAND continue to rise, players like Samsung, SK hynix, Micron, and Chinese memory manufacturers all have incentives to expand production.

Therefore, while this earnings report can prove the current memory market remains tight, it cannot independently prove that oversupply will not occur after 2027.

3. Market Enters "Difficult Mode," but the Memory Bull Market Hasn't Peaked

Objectively speaking, the market's biggest current worry is whether SK hynix, flush with orders and cash, will be tempted to bet on another massive round of capacity expansion.

As of the end of Q2, SK hynix held 88 trillion KRW in cash and short-term investments, an increase of 33.6 trillion KRW from Q1. Interest-bearing debt fell to 18.6 trillion KRW, resulting in net cash of 69.4 trillion KRW.

In short, SK hynix has transformed from a company needing to control debt and cash flow during the last memory downturn into a net cash company with strong capacity expansion capabilities.

The company expects 2026 capital expenditure to reach 40 trillion KRW, higher than the 30.2 trillion KRW in 2025. In the short term, it will accelerate the mass production of M15X and prepare capacity for the Yongin Phase 1 cleanroom opening in early 2027. In the medium to long term, it will also advance the P&T7 advanced packaging plant, the M17 NAND production base, and a new semiconductor industrial cluster.

These investments need to be understood in two parts.

Investment in HBM4, advanced packaging, advanced processes, and high-end enterprise SSDs is essentially filling existing supply bottlenecks. However, if general-purpose DRAM and NAND capacity also expands rapidly at peak prices, it could lay the groundwork for future oversupply.

Therefore, high capital expenditure itself is not a negative. What truly determines the cycle's direction is where the money is spent, when the capacity comes online, and whether long-term orders are in place to absorb it.

Based on current information, SK hynix emphasizes that new capacity will be deployed in phases based on confirmed customer demand and long-term agreements, not as a one-time broad expansion. The company believes its current capacity plans won't immediately lead to oversupply.

However, the market's cautious stance is also justified:

• On one hand, the 76% operating profit margin is already at an extremely high level. Even if profits continue to grow, room for further margin expansion will become increasingly limited.
• On the other hand, while long-term agreements can raise the floor for performance, they may also reduce the upside profit elasticity during phases of rapid price increases.
• Additionally, with cash piling up quickly, investors are demanding clearer shareholder return plans. SK hynix stated that due to procedures related to the ADR issuance, it cannot currently disclose the specific form and scale of buybacks, dividends, or other capital return measures, but plans to announce further arrangements within the year.

In a nutshell, this earnings report doesn't prove the memory bull market is over, but it clearly shows that the trading logic for SK hynix's stock has changed.

After all, HBM4 shipments have begun, some high-value product revenue has been deferred to H2, DRAM and NAND prices are still rising, enterprise SSD demand continues to expand, and about 10 customers have signed multi-year procurement agreements. These signals are hard to reconcile with a memory cycle already entering a contraction phase.

It's just that the market has started applying a higher standard to scrutinize how much longer this boom can last.

Final Thoughts

Overall, this earnings report does not prove that the memory cycle has peaked.

It looks more like a timing mismatch under extremely high expectations—the market raised the passing grade from 100 to 110 points. SK hynix submitted a near-perfect score, but it was still deemed not good enough.

But missing expectations is not demand reversal.

With HBM4 entering mass production, approximately 10 customers signing long-term agreements, DRAM and NAND prices rising simultaneously, and demand for enterprise SSDs and AI server memory broadening, however you look at it, SK hynix remains in a high-growth phase, its growth engines are actually becoming more diversified, and its fundamentals are rock solid.

Only, the trading logic has shifted.

The stock has moved from a "profit growth trade" to a repricing of cycle length, earnings quality, and capital allocation.

Of course, the next record doesn't have to be more dramatic than this one. As long as SK hynix can continue to prove that the 76% margin is not an isolated peak, but is instead supported by longer orders, broader demand, and more disciplined capacity expansion.

Then the peak of summer is far from over.