Korea Investment & Securities Co. maintained its "Buy" rating on SK hynix and raised its target price by 85% to 3.8 million won from 2.05 million won. The firm said memory semiconductors are being re-evaluated as a key asset for artificial intelligence (AI) infrastructure.
Chae Min-suk, an analyst at Korea Investment & Securities Co., said, "Memory semiconductors are being re-evaluated as a key asset for AI infrastructure beyond simple commodity products." Chae added, "The strategic assetization of memory will support the sustainability of a high return on equity (ROE) and serve to justify multiple rerating."
Korea Investment & Securities Co. set the target price-to-book ratio (PBR) at 6 times, based on an average ROE of 60% for 2026–2029. A PBR of 6 times translates to about 10 times on a price-to-earnings ratio (PER) basis.
Chae said, "Given that the compound annual growth rate (CAGR) of earnings per share (EPS) is about 20% for 2026–2030 and about 10% for 2027–2030 as well, the current and target multiples are reasonable even considering the sustainability of growth and profitability."
In particular, Chae emphasized that the memory supply shortage is not a temporary phenomenon but a structural change. High Bandwidth Memory (HBM) requires more than about three times the production capacity (CAPA) compared with commodity DRAM, so even with the same capital expenditures (CAPEX), the pace of DRAM supply growth will inevitably be significantly slower than in the past. Chae also said this structural supply shortage is changing the contract structure of long-term agreements (LTAs) that had been operated as a matter of routine in the past.
Chae explained, "In the past, LTAs were merely nonbinding contracts that included one-year quantity guidance," adding, "The LTAs now being signed sequentially with hyperscalers are up to five-year contracts that reduce the volatility of medium- to long-term demand, and they set the elevated average selling price (ASP) as the floor for long-term contract prices to reduce downside risk to operating margins."
Chae also analyzed that LTAs will reduce volatility in memory results. SK hynix is understood to be entering into three- to five-year LTAs with four hyperscalers that account for 25%–30% of total sales.
Chae said, "The fundamental reason memory prices plunged in past downcycles was that suppliers, burdened by high fixed costs, competitively lowered prices to clear inventory," adding, "Today's LTAs, by enabling stable profitability based on contract prices, serve to maintain suppliers' financial strength."
In other words, suppliers now have less incentive to aggressively ship low-priced volumes to secure short-term cash flow as they did in the past.
Chae projected that if commodity DRAM led the blended ASP increase this year, HBM will drive the blended ASP increase next year. HBM began annual price negotiations from the first half of last year for this year, making price increases difficult even as commodity DRAM prices surged since last year. However, with DRAM supply shortages expected to continue next year, HBM prices are forecast to rise sharply next year, including the portion that did not increase this year.
Chae estimated that this year's commodity DRAM ASP rose 315% from a year earlier and will rise 21% next year. HBM ASP fell 16% this year, but is expected to rise 116% next year.