Why SK Hynix shares crashed over 15% days after their Nasdaq debut

The excitement around SK Hynix's Nasdaq debut did not last long. Just days after making a strong start in the US market, the South Korean chipmaker's shares plunged more than 15% on Monday, as investors rushed to book profits.

The sell-off also reflected growing caution over whether the company can continue to deliver the strong earnings growth that investors have been expecting.

PROFIT BOOKING TRIGGERS SHARP FALL

SK Hynix shares have had a remarkable run this year, with the stock more than tripling in value before its US listing.

Last week, the company raised more than $26 billion through the sale of American Depositary Receipts (ADRs), priced at $149 each. The ADRs opened about 14% higher at $170 and ended their first trading day with a gain of 12.8%, reported Reuters.

However, after the listing, many investors in South Korea decided to book profits, leading to a sharp decline in the company's shares.

SELL-OFF HITS WIDER MARKET

The weakness was not limited to SK Hynix.

Shares of rival Samsung Electronics also declined, contributing to a 9% fall in South Korea's Kospi index. The sharp market decline triggered a 20-minute trading halt before trading resumed.

Even after markets reopened, Korean stocks remained under pressure.

GOVERNMENT BACKS AI AND CHIP SECTOR

The market weakness came despite South Korean President Lee Jae Myung announcing that his government would provide support for three major projects focused on semiconductors, artificial intelligence data centres and physical AI.

Despite the announcement, investor sentiment remained weak as concerns over company earnings outweighed the positive policy news.

INVESTORS WORRY ABOUT FUTURE EARNINGS

Market experts said investors are becoming more cautious about how long the current boom in AI-related memory chips will last.

Morningstar's director Lorraine Tan said the current memory chip cycle has been stronger than expected but believes earnings growth could return to more normal levels, limiting further upside.

She also noted that while artificial intelligence adoption continues to grow, companies developing AI technologies are still facing challenges in turning that demand into sustainable profits. Rising reliance on debt and equity funding has also raised concerns about whether current spending levels can continue.

CONCERNS OVER CHIP SHIPMENTS

Analysts also pointed to concerns surrounding SK Hynix's upcoming second-quarter earnings.

According to South Korean, senior analyst at NH Investment & Securities, investors had expected shipments of the company's latest HBM4 memory chips to rise during the second quarter. However, that increase does not appear to have happened on a large scale.

He added that investors have also lowered their earnings expectations because SK Hynix is more heavily exposed to the high-bandwidth memory (HBM) market than Samsung Electronics, meaning it may benefit less from the recent rise in prices of conventional DRAM chips.

ADRs CONTINUE TO TRADE AT A PREMIUM

Following Monday's sell-off in Seoul, SK Hynix's US-listed ADRs continued to trade at a significant premium to its South Korean shares.

According to market strategist James Ooi of Tiger Brokers, companies listed in both the US and their home markets often command higher valuations in the US due to broader investor access, stronger liquidity and better valuation support.

He added that converting Korean shares into ADRs is not straightforward, limiting opportunities for arbitrage between the two markets.

SK HYNIX REMAINS THE HBM MARKET LEADER

Despite the recent fall in its share price, SK Hynix continues to lead the global market for high-bandwidth memory (HBM) chips, which are widely used in artificial intelligence systems.

According to Counterpoint Research, the company held a 58% revenue share of the HBM market in the first quarter. Samsung Electronics and Micron Technology each accounted for 21%.

HBM chips are used in AI systems by major technology companies, including Nvidia and Google.