SK Hynix has dropped nearly 40% from its high—an opportunity to buy the dip, or the start of even greater risks?

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South Korea’s memory chip giant has suffered one of the most brutal single-day sell-offs in history, but whether this plunge is a buying window after an emotional release or a sign of worsening fundamentals, market divisions are intensifying.

On July 13, SK Hynix plummeted over 15% in a single day on the Seoul stock market, marking its largest daily drop ever, with its share price hitting a two-month low; Samsung Electronics fell nearly 11% on the same day. Together, these two heavyweight stocks dragged the Korea Composite Stock Price Index (KOSPI) down 9% in a single day, triggering this year’s seventh circuit breaker mechanism.

This scene unfolded right after SK Hynix completed the largest ever IPO by a foreign company in the U.S., with its ADR (American Depositary Receipt) surging 13% last Friday—a vivid demonstration of the market logic that “all good news is priced in.”

The trigger came from a local Korean brokerage. According to a previous WallstreetCN article, Korea Investment Securities issued a report that day predicting SK Hynix’s Q2 operating profit at 60.4 trillion KRW, about 8% lower than the consensus estimate of 65 trillion KRW, directly igniting market sentiment. Meanwhile, SK Hynix’s share price had already fallen more than 38% from its June 25 historical high within three weeks, with Samsung similarly dropping about 32% from its recent peak.

Sell-off Trigger: An Earnings Forecast Below Expectations

The core logic of the KIS report is straightforward, but the market’s reaction was exceptionally intense.

According to a previous WallstreetCN article, KIS predicted SK Hynix’s Q2 revenue at 80.9 trillion KRW, up 54% quarter-on-quarter and soaring 264% year-on-year; operating profit at 60.4 trillion KRW, up 61% quarter-on-quarter and 556% year-on-year. The numbers themselves are still impressive, but the issue is that the market consensus was 65 trillion KRW, and KIS’s forecast was about 8% below consensus.

The root of this gap points to the pricing structure of high-bandwidth memory (HBM). According to Bloomberg, SK Hynix has a high revenue proportion in the HBM field, and HBM supply contracts are typically based on less-flexible long-term agreements (LTA), resulting in a lower average selling price (ASP) increase compared with standard memory chips. KIS simultaneously lowered SK Hynix’s 2026 and 2027 earnings forecasts by 9% and 11%, respectively, but maintained a target price of 3.8 million KRW, emphasizing that this downgrade was only a correction for LTA pricing, not a deterioration of fundamentals.

Nevertheless, the market was not convinced. SK Hynix quickly fell below the 2 million KRW mark after the opening, with the drop once exceeding 10%, and finally closed down more than 15%.

"All Good News Priced In": ADR Listing Becomes Sell Signal

Another background for the plunge is SK Hynix’s completion of the largest-ever IPO by a foreign company in the U.S.

SK Hynix’s U.S. issuance reached 26.5 billion dollars, with the subscription ratio exceeding seven times, and ADRs surged 13% on the first trading day last Friday. However, Seoul market investors immediately saw this success as an opportunity to cash out chips.

Chan H Lee, Managing Partner at Seoul hedge fund Petra Capital Management, told Bloomberg, "The ADR listing was highly successful, but that success was long priced in by the market. Today's weakness is more of a classic 'all good news priced in' reaction and profit taking, rather than a change in fundamentals."

This judgment echoes Samsung's experience. According to Bloomberg, Samsung's preliminary earnings announcement last week also triggered selling and affected the global tech supply chain. The AI boom has raised market expectations, but once those expectations are hard to beat, they become a source of pressure on share prices.

Structural Concerns: Dual Pressure from Capacity Expansion and Weakening Demand

Beyond short-term sentiment, there are real structural concerns over the medium-to-long-term logic of the memory chip industry.

SK Hynix CEO Kwak Noh-Jung said in an interview last Friday that memory chip shortages may persist beyond 2030. However, the rush for capacity expansion by memory chip manufacturers has made the market uneasy about the impact on profits once demand eventually falls.

Aleksey Mironenko, Head of Global Investment Solutions at Leo Wealth, told Bloomberg TV, "SK Hynix’s additional financing is not for dividends, but to expand capacity. Meanwhile, buyers keep innovating, trying to reduce the required memory and computing power consumption. As a result, demand will decline slowly, and supply will increase slowly."

This concern over the supply-demand scissors, combined with insufficient pricing flexibility in HBM, forms the core logic for the current market revaluation of SK Hynix and Samsung.

Technical and Market Sentiment: Oversold Signals Emerge, Disagreement Remains

Technically, the recent plunge has pushed SK Hynix into oversold territory, and some analysts believe a short-term buying opportunity is emerging.

According to Bloomberg, Nico Rosti, analyst at MRM Research, said SK Hynix’s share price is now displaying “deep oversold” characteristics. He wrote in a Smartkarma report, "Another week of decline is possible, but we see it as an opportunity to add positions. A rebound in the Korean market should drive ADRs higher, so this is a good time to buy."

However, the high volatility of the market itself is also a warning signal. According to Bloomberg, the prevalence of leveraged ETFs tracking SK Hynix and Samsung has further amplified price swings. KOSPI’s single-day ups and downs reaching 5% has become increasingly common—since 2000, circuit breakers have been triggered 13 times, with seven occurrences this year.

SK Hynix’s share price has already fallen more than 38% from its June historical peak, while Samsung similarly dropped about 30% from its recent high. With the AI narrative not yet broken but the pressure of meeting expectations continuing to accumulate, whether this plunge is noise within the cycle or the prelude to a turning point remains for investors to weigh carefully.

Risk Warning and Disclaimer ClauseThe market involves risk, and investment requires caution. This article does not constitute personal investment advice, nor does it take into account the special investment objectives, financial circumstances, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their particular situation. Investing accordingly is at your own risk. ```