Goldman and Citi Predict More Gains for Nvidia Supplier Hynix After 90% Rally

(Bloomberg) — Shares in South Korea’s SK Hynix Inc., a key supplier to Nvidia Corp., have jumped more than 90% over the past year and Wall Street is predicting further gains.

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No fewer than 19 analysts have upgraded their forecasts over the past month for the firm, the largest supplier of high-bandwidth memory chips to Nvidia’s artificial-intelligence products. Reasons they give include the sky-high potential for AI, and the prospect of a positive surprise in this month’s earnings.

Goldman Sachs Group Inc. upgraded its stock-price target to 290,000 won ($210) on Tuesday, implying a potential gain of 25% from that day’s close. Citigroup Inc. last week raised its prediction to 350,000 won, more than 50% higher than the current share price.

“The current share valuation isn’t fully reflecting the potential of high-bandwidth memory chips,” said Roh Jongwon, chief investment officer at Infinity Global Asset Management Co. in Seoul. “The market is treating HBM’s valuation the same as traditional memory chips, but HBM is almost twice as profitable.”

SK Hynix will report a second-quarter operating profit of 5 trillion won, the most in six years, when it announces earnings on July 26, according to the median of estimates compiled by Bloomberg. That would continue its turnaround from last year’s losses amid a recovery in memory-chip prices helped by demand for high-end devices for AI applications.

Citi arrived at its 350,000 won price target — the most bullish among analysts’ forecasts compiled by Bloomberg — by taking previous peaks in SK Hynix stock and adding some discount, said Peter Lee, head of global tech and communication at Citigroup Global Markets Korea Securities Ltd.

Demand for HBM may not be fully reflected yet as the world is unfamiliar with the potential of AI, Lee said, citing the earlier introduction of smart phones. “Because this is a market that didn’t exist in the past, we have never seen how far it can go.”

Getting Expensive

Still, some investors say there’s reason to be cautious as multiples head higher. SK Hynix is now trading at 2.9 times book value, making it the most expensive since at least 2011, according to data compiled by Bloomberg.

“We have entered uncharted territory in terms of the valuation,” said Yoon Joonwon, a fund manager at DS Asset Management Co. in Seoul. “I think its earnings will beat market expectations this year and next year, but the markets are still uncertain about that.”

Investors are also getting jittery.

SK Hynix shares sank as much as 4.7% Thursday following local media reports that Samsung Electronics Co. will soon enter talks with Nvidia to supply the US company with its own version of HBM chips. Samsung later denied the reports.

There are also concerns about a potential oversupply of memory chips after SK Hynix on June 30 announced a $75 billion investment plan through 2028. Increasing output may depress chip prices and raise the specter of a downturn in the memory industry.

“Because this is an untrodden path, volatility is inevitable,” Citigroup’s Lee said.

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