"The most profitable quarter in history" meets a 30% plunge in a single month! SK Hynix (SKHY.US) earnings report could become the "life or death marker" for the AI storage supercycle

According to the Zhitong Finance APP, SK Hynix (SKHY.US), which is set to release its first earnings report since its Nasdaq listing after the U.S. market close on July 28, has caught investor attention as its share price reaction post-results becomes a key focus. Wall Street generally expects Q2 revenue to reach 84.12 trillion KRW (about $57.6 billion), with GAAP EPS at 80,145.08 KRW, Non-GAAP EPS at 70,975.39 KRW, converting to about $4.87 GAAP EPS per share.

The AI-driven new storage upcycle continues to unfold, and as a leading manufacturer of high bandwidth memory (HBM), SK Hynix is set to experience one of its most profitable quarters in history. However, after a sharp rally earlier, SK Hynix shares have pulled back significantly recently, with a decline of over 30% in the past month. The market is closely watching whether this earnings report can restore confidence.

"One of the Most Profitable Quarters" Encounters Major Pullback

On Tuesday, Korean semiconductor stocks plunged sharply, extending the weak performance of U.S. chip stocks overnight, intensifying sector-wide selloffs.

Both Samsung Electronics and SK Hynix are global leaders in high bandwidth memory (HBM) chip supply, and their products are widely used in AI servers. As a result, their stock prices are highly sensitive to U.S. hyperscalers' (large cloud service providers) capital expenditure expectations, with any market fluctuation likely to incite dramatic price movements.

SK Hynix's intraday loss expanded to over 10%, while Samsung Electronics fell over 8%. Other AI concept stocks also came under pressure: Samsung SDI plunged over 7%, LG Innotek slumped nearly 14%, Seoul Semiconductor dropped about 6%, and LG Chem declined more than 4%.

Japanese semiconductor stocks also weren't spared. Tokyo Electron dropped more than 9%, Advantest sank over 8%, while SoftBank Group—a key AI investment barometer through its stake in Arm—fell nearly 5%. NAND manufacturer Kioxia's shares tumbled over 15%.

This round of selling was triggered by Monday’s weak performance in the U.S. semiconductor sector. VanEck Semiconductor ETF (SMH) fell over 2% on the day, extending losses from the previous Friday; AMD and Teradyne led declines with drops of 5% and 4% respectively, and Micron Technology slipped about 2%.

This weak performance highlights the growing correlation between Asian technology stocks and the U.S. AI trading trend.

From the options market perspective, at-the-money straddle pricing for options expiring this Friday implies traders expect post-earnings single-direction price swings of about 10.9%. At the current share price of $139.90, the options market suggests a post-earnings trading range of approximately $125.60 to $155.14.

Open interest in options expiring the week of July 31 shows a clear bearish bias. Among near-term strikes, the $120 strike put option has the highest open interest at 16,704 contracts, becoming a key downside reference point. On the call side, the $170 strike holds the most contracts, totaling 4,516. Overall sentiment overwhelmingly favors downside protection, with total put open interest at 108,579 versus just 19,324 for calls, making for a put/call open interest ratio of 5.62—far above the generally balanced benchmark of 1.0.

Looking across longer maturities, traders have amassed significant positions in deep out-of-the-money options. For calls, the $200 strike has the largest open interest at 53,031 contracts, indicating some investors are positioning for significant upside over a longer time horizon. Conversely, downside hedging is concentrated at the $85 strike put, which leads all puts with 65,470 contracts.

Q2 Preview: Key Validation Period for AI Memory Supercycle, Profits May Hit All-Time Highs

SK Hynix is scheduled to report Q2 2026 earnings on July 29. According to Korean financial data provider Yonhap Infomax’s consensus from 14 brokerages, Q2 revenue is expected to reach about 84.1 trillion KRW (around $57.6 billion), with operating profit seen at 64.1 trillion KRW—both set to hit record highs. If actual results match expectations, Q2’s single-quarter operating profit alone would surpass the full-year 2025 level of 47.2 trillion KRW.

HBM Remains Growth Core, AI Customer Contribution Continues to Rise

Market consensus holds that the main driver of this cycle’s earnings growth remains AI infrastructure investment. Ongoing improvement in traditional DRAM prices, combined with robust demand for high bandwidth memory (HBM) and enterprise SSDs, continues to power profit growth. With global cloud providers expanding AI data centers and ramping up high-performance storage product purchases, SK Hynix’s product mix is steadily tilting toward higher-margin AI memory lines.

Korean brokerage KB Securities expects that, in Q2 this year, revenue from global tech giants and AI data center operators will account for about 70% of SK Hynix's total sales—a significant jump from previous years. Analysts believe that as more HBM capacity comes online, incremental supply for traditional DRAM will face some constraint. Moreover, a rising share of long-term agreements (LTAs) also gives the company greater future revenue visibility.

Compared to the past, when the business depended more on consumer electronics volatility, SK Hynix now relies increasingly on large enterprise customers and AI infrastructure orders, structurally improving its earnings stability. The industry expects that by around 2027, the B2B business could reach about 70% of total revenue, far outpacing previous storage cycles. This suggests that the logic behind this AI-driven upcycle growth differs significantly from previous traditional cycles.

Profitability Continues to Climb, Cash Flow Advantage Further Expands

According to market consensus, company operating margin in Q2 is expected to reach 75% to 77%, higher than Q1 levels and continuing to lead most global semiconductor makers. If this holds true, it would mean that for every 100 KRW in product sales, about 75 KRW is converted into operating profit—a rarity in manufacturing industries.

At the same time, the company's financial position continues to improve. Since returning to a net cash position last year, SK Hynix’s cash reserves have grown steadily. As of the end of Q1 this year, net cash balance was about 35 trillion KRW. The market expects this to further increase in Q2, providing ample funding for ongoing capital expenditure, HBM capacity expansion, and next-generation product R&D.

With profits continuing to rise, employee performance bonuses are also likely to stay high. According to Korean media, SK Hynix plans to distribute first-half productivity incentive (PI) bonuses to staff before the end of July, which are expected to reach regulatory maximums.

ADR Premium Over 50% Raises Market Concerns, LTA Model Contains Risks

Despite repeatedly topping earnings forecasts, market sentiment is not universally optimistic. Recently, SK Hynix shares have fallen sharply from highs, with its U.S. ADR premium to Korean ordinary shares at times reaching 51%. This has prompted Wall Street warnings over overheated AI trading.

Generally, if the same company’s shares trade at a significant price differential on different markets, arbitrage capital tends to drive those prices to converge. However, SK Hynix ADR has maintained a high premium for a long time, reflecting U.S. investors’ willingness to pay up for the top AI memory leader. Still, with market expectations running high, if results or management guidance disappoint, lofty valuations could amplify share volatility.

Additionally, there are concerns over the sustainability of long-term supply agreements (LTAs) in the memory industry. The Bank for International Settlements (BIS) warned in its latest annual economic report that temporary AI supply chain shortages are amplifying overinvestment risks. Companies that lock in future capacity through long-term contracts may face greater risk exposure if demand reverses. Such concerns have become a major reason for investor caution over AI supply chain valuations recently. Previously, U.S. memory and semiconductor stocks have already undergone significant corrections as the market reassesses the sustainability of AI infrastructure investment and the long-term pace of data center construction.

Nonetheless, optimistic institutions argue that the current supply-demand landscape remains unchanged. Morgan Stanley analyst Joseph Moore recently said after speaking with several data center procurement heads that HBM and high-end storage products remain in short supply, and he expects memory prices to rise at least another 25% in Q3. He believes recent memory stock pullbacks reflect market sentiment rather than deteriorating fundamentals, and that tight industry supply could last until 2028.

Therefore, the SK Hynix earnings report coming this week will not only validate record-breaking Q2 results but, more importantly, provide the latest management assessment on HBM demand, long-term orders, capital expenditure, and industry outlook for the second half. This information will not only impact the future performance of SK Hynix shares but could also serve as a key indicator for whether the global AI storage supercycle remains intact.