Earnings Preview | After a 30% Drop in Stock Price, Will HBM4 Mass Production and DRAM Price Increases Reignite SK Hynix (SKHY.US) Rally?

According to Zhitong Finance APP, SK Hynix (SKHY.US) will release its third quarter fiscal year 2026 earnings report on October 28. Since its IPO on Nasdaq in mid-July 2026, the stock has experienced significant volatility, with prices fluctuating from $124.8 to $199.87 per share over the past three months.

In the few trading days ahead of SK Hynix’s Q2 2026 earnings announcement in late July, the company’s share price fell by over 25%. However, after the release of the Q2 results and the market witnessed SK Hynix’s impressive operational performance, the share price rose by 57% in less than two months. Currently, ahead of another earnings report (October 28), the stock price has once again declined, retreating about 28% from its historical high.

Although the Q2 results were not without flaws, compiled data showed the market generally expected Q2 revenue of $56.79 billion, while SK Hynix actually reported $54.55 billion, about 4% below consensus. This likely explains the initial post-earnings pressure on the share price. However, management subsequently clarified the key reason for the revenue miss: SK Hynix decided to lock about 50% of its shipments under multi-year long-term agreements (LTAs), a strategy similar to what memory vendors like Micron (MU.US) are currently adopting.

SK Hynix deliberately gave up the flexibility brought by short-term spot market price surges in exchange for more predictable cash flow growth prospects. In addition, the company postponed some high-value DRAM and HBM shipments from Q2 to the second half of 2026 to ensure customer deployments proceeded as planned. Therefore, the post-earnings share price drop did not last long.

In fact, another layer of risk weighing on the current stock price comes from macro factors and technological advancements by Chinese memory manufacturer CXMT. However, analyst Oakoff Investments does not believe these factors pose a substantial change for SK Hynix and its peers.

Firstly, macro risks related to the debt market and rising yields have not directly impacted SK Hynix as the company does not currently need to raise funds through debt issuance; its key customers might require funding, but there seem to be no hindrances for the hyper-scale cloud providers who are the major end customers.

Secondly, market discussions around CXMT’s progress are mainly focused on commodity DRAM and lower-end architectures, far from the high-density HBM4 and advanced packaging that SK Hynix is targeting. The analyst believes it is nearly impossible for CXMT to undermine SK Hynix’s moat at this stage, hence posing no medium-term risk.

In terms of profitability, SK Hynix recorded approximately $45.2 billion in operating profit on $54.55 billion in Q2 revenue, achieving an EBIT margin of 76.3% in KRW terms. In comparison, TSMC (TSM.US) posted a Q2 EBIT margin of 60.3%, while Micron’s Q1 margin was 67.6%.

Oakoff Investments points out that SK Hynix’s current profitability now exceeds that of the world’s top dedicated wafer foundries, demonstrating its strong pricing power. Shipments of server DDR5 and high-capacity HBM3E/HBM4 chips have helped the company achieve significant pricing advantages in its DRAM segment, with average DRAM selling prices up 30% quarter-on-quarter in Q2 and average NAND Flash prices jumping over 50%. Although there were previous market concerns that advancements in optimization algorithms might reduce NAND demand, hyper-scale cloud providers are still expanding context windows and KV cache storage for AI inference models. The analyst believes this trend will not stop next year.

On the product front, SK Hynix started mass production and shipment of 12-layer HBM4 chips to key customers in Q2. During the earnings call, the company stated that the current yield and quality of HBM4 are approaching the mature levels of HBM3E, with a current focus on steadily increasing capacity.

Oakoff Investments notes that this lays an important foundation for SK Hynix’s future profit growth, because reaching such yield levels in Q2 means the risk of significant losses from high scrap rates at the beginning of mass production has been greatly reduced. Unit costs are expected to continue falling, and as long as HBM dual-layer stacking scales sufficiently, the high operating profit margin seen in Q2 has a basis to persist.

Regarding the upcoming Q3, management confirmed on the earnings call that the expansion of mixed DRAM average selling prices in the second half should outpace that of the first half: “As HBM4 shipments truly ramp up and 1c-nanometer traditional DRAM shipments increase, we expect bit growth in the second half to exceed that of the first half. Furthermore, considering changes in customer demand and product mix, the continued growth of HBM4 sales and the increased contribution from high value-added products will have a positive impact on our blended average selling price. This will lead to higher shipment volumes and ongoing improvement in product mix, thereby boosting our average selling price and profitability in the second half.”

It is reported that the company guides for a 10% quarter-on-quarter increase in DRAM bit shipments for Q3. After HBM4 yield reached targets, this incremental shipment will maintain high gross margins. Even if SK Hynix beats expectations as in Q2, the results themselves are not the only focus—guidance is the core. Based on this, Oakoff Investments remains optimistic.

According to TrendForce data, contract DRAM prices in the third quarter of 2026 are set to rise 13%-18% quarter-on-quarter, with NAND Flash contract prices expected to increase by 10%-15%. In the fourth quarter of 2026, the agency expects DRAM prices to rise 20% quarter-on-quarter. From Oakoff Investments’ perspective, the pricing environment is becoming increasingly unfavorable for buyers and ever more favorable for sellers such as SK Hynix.

For the upcoming Q3 results, compiled data shows the market expects SK Hynix’s adjusted EPS to be $6.25, GAAP EPS to be $6.12, and revenue to be $74.81 billion. Over the past 90 days, EPS forecasts have seen zero upward adjustments and one downward revision. The analyst believes that after a negative revision post-Q2, SK Hynix has a low hurdle for exceeding expectations this time.

In terms of valuation, current market consensus for SK Hynix’s EPS in FY2026 to FY2028 is $26.31, $32.73, and $41.08, corresponding to year-on-year growth rates of 24.41% and 25.52%. Based on FY2027 EPS, the forward P/E ratio is just 4.37x, with FY2026 and FY2028 at 5.43x and 3.48x, respectively.

Oakoff Investments believes that for a semiconductor company with over 24% EPS growth, this valuation appears too low, but given the highly cyclical nature of memory stocks, a market discount is not surprising. However, since consensus expects the company’s EPS to grow another 25.52% in FY2028, FY2027 is not likely the cycle’s peak. Based on this, the analyst assumes SK Hynix’s FY2027 EPS to be $35—slightly above consensus median—and EPS growth over 25% for FY2028, assigning a 5x-8x P/E to FY2027 and deriving a target price of about $227.5.

Bank of America analysts also have a positive outlook on SK Hynix. In a research report, the bank stated it expects SK Hynix to provide a strong Q4 outlook on October 28, possibly including a special cash dividend; Nanya Technology in Taiwan has already issued a favorable Q4 forecast. Bank of America also noted that PC memory monthly contract prices rose by over 15%, with spot prices remaining stable.

However, Bank of America also mentioned that Singapore investors have mixed feedback on the memory cycle: hedge fund investors are bearish, while most long-term investors remain bullish. Market concerns include high borrowing costs for AI cloud companies, increased memory supply from China, and a slowdown in AI spending.

The analyst also outlined major risks: First, memory cycles often turn when only a few notice; second, services like TrendForce and Semianalysis make memory price dynamics highly transparent to tech investors, so SK Hynix’s outperformance may already be priced in—meaning that even with a significant beat and strong guidance, the share price might not show a logically positive reaction; third, if results miss expectations, shares could drop sharply; fourth, the potential impact from Chinese competitors may be underestimated—if Chinese vendors prove their technology is on par with SK Hynix and its Western peers, the market could harshly punish all memory stocks.

Despite considerable risks, Oakoff Investments still believes SK Hynix is very likely to exceed the upcoming earnings expectations, with management guidance possibly providing further upside surprise. The basis for this view includes: the current memory cycle does not appear to be peaking soon, with further operational upside next year; SK Hynix, with its still-intact high profit margin, remains one of the purest industry leaders without signs of margin erosion; its valuation model shows the company is over 67% undervalued and may converge over the next 12 months or so.