“Worse than expected” sends SK hynix shares crashing; storage stocks face collective pressure

Author: Long Yue, Wall Street Insights

On July 13, Korean local brokerage KIS released a second-quarter earnings forecast report for SK hynix.

It expects SK hynix Q2 revenue to be 80.9 trillion won, up 54% quarter-over-quarter and up 264% year-over-year. Operating profit is forecast at 60.4 trillion won, up 61% quarter-over-quarter and up 556% year-over-year.

The numbers look impressive, but the issue is: the market consensus expects 65 trillion won, and KIS’s forecast is about 8% below consensus.

This deviation directly triggered a market sell-off.

After the opening of the Korean stock market, SK hynix’s share price quickly plunged by more than 10%, falling below the 2 million won level. Compared with the June 25 historical high, the pullback in just three weeks reached 33%.

HBM has a high share, but it drags down ASP

In its report, KIS explained the core reason for profit coming in below consensus: SK hynix’s HBM (high-bandwidth memory) revenue share is higher than its peers, and its shipment share is also too high, which results in its average selling price (ASP) rising less than the market average.

This logic seems counterintuitive at first glance—HBM is a high-end product, so shouldn’t a higher share make it earn more?

The key lies in the pricing structure. HBM is typically locked in at prices through long-term supply agreements (LTA). The contract price is relatively fixed and won’t be adjusted upward significantly in the short term with market conditions. By contrast, ordinary DRAM and NAND have higher price elasticity in the spot market. When the overall market price rises, the ASP increase for these products is actually larger.

SK hynix’s overly high HBM share means that, during this round of market-average price increases, it “captures” less of the price-upside than its peers.

Meanwhile, the spot average prices of ordinary DRAM and NAND are still surging—KIS forecasts the average Q2 DRAM price to rise about 30% quarter-over-quarter and NAND to rise 50%—but Micron’s overall ASP growth is “held back” by HBM’s contracted prices.

Downgrade comes from LTA repricing, not deterioration in fundamentals

KIS clearly stated in the report that this downgrade is not due to earnings concerns, but a revision to account for the price assumptions of already signed long-term supply agreements (LTA).

The report’s original wording is: “This is the result of incorporating the already signed LTA into the price assumptions and adjusting the forecast to make it realistic, not an expression of concern about earnings.”

KIS also lowered its operating profit forecasts for 2026 and 2027, by roughly 9% and 11% from the prior estimates, respectively. However, the brokerage emphasized that as HBM4 begins large-scale shipments from the third quarter, the market’s average price increase will lift overall ASP. At that time, SK hynix’s ASP growth will return to the market average level.

KIS predicts that the operating margin in 2026 Q2 will reach 74.6%, a record high, and then increase every quarter thereafter.

The brokerage maintains its target price of 3.8 million won and a “buy/accumulate” rating. It believes the forecast cut is only a short-term disturbance and does not change the upward trend in earnings over the medium to long term.

“Up 556% but still misses expectations”: the crack in market sentiment

A year-over-year increase of 556% is an extremely strong figure in any industry. But the logic of capital markets is: what matters is not how much it rose, but whether it met expectations.

The market had already fully priced in the consensus expectation of 65 trillion won. KIS’s forecast is about 4.6 trillion won lower than that figure, which is essentially a direct signal that “expectations were too high.”

This triggered two layers of concern: first, the immediate shock from earnings coming in below expectations in the short term; second, whether the high HBM share constitutes a structural risk—i.e., the more SK hynix bets on HBM, the more its ASP elasticity is constrained during the contract lock-in period.

Combined with the fact that SK hynix just listed on the U.S. stock market last Friday, some funds that had bet on “IPO shares” chose to cash out after the ADR listing, further intensifying selling pressure.

Stampede spreads: HK stock ETF and A-share storage stocks fall in sync

SK hynix’s down move quickly spilled over to surrounding markets.

In Hong Kong, the 2x leveraged long SK hynix ETF fell by more than 22% in a single day, while the 2x leveraged long Samsung Electronics ETF dropped by more than 13%.

In A-shares, storage concept stocks also slid together. Multiple core names, including兆易创新, 北京君正, 江波龙, and 佰维存储, all fell by more than 7%.

But from a more macro perspective, the storage semiconductor sector as a whole has entered a correction phase over the past half month, with some individual stocks down more than 20%, reaching the boundary of a technical bear market. Behind this are also factors related to global capital rebalancing its positioning within AI and across markets— including the rotation logic of “sell chips, buy cloud,” and the stage of rebound in Hong Kong markets that has attracted some capital back.

Brokerage: long-term logic unchanged, focus on earnings sustainability

Despite the market turmoil, KIS’s overall stance in its report is not pessimistic.

The brokerage believes that as the storage industry transitions to a 3- to 5-year LTA contract structure, the core driver of company valuation will shift from “the quarter-by-quarter ASP growth rate” to “how long high profitability can be sustained.”

KIS’s report states: “From now on, what needs to be watched is earnings sustainability. The expansion of LTA is reducing the earnings volatility the storage industry has long experienced.”

The brokerage expects that as the share of contracted revenue increases, and the expansion of HBM capacity tightens the overall supply, SK hynix’s high profitability can be maintained over the long run, and its valuation will be repriced accordingly.

The target price of 3.8 million won still implies substantial upside from the current stock price. KIS maintains a “buy/accumulate” rating.