SK Hynix seeks access to AI investors in US$29 billion Nasdaq listing

THIS week’s US$29 billion US stock-market listing for SK Hynix may be the biggest-ever first-time share sale by a foreign company, but it is not just about raising cash. It is also about competing in the hottest corner of the global stock market – memory chips used in artificial intelligence computing.

For years, the South Korea-based semiconductor manufacturer has traded at a discount to its chief US-based rival, Micron Technology.

Tapping into the world’s deepest equity market and its frenzy for all things related to AI could help change that at a time when the companies that make memory chips and other equipment used in AI data centres are driving the performance of the S&P 500 Index.

“We are in a time of extreme enthusiasm about chip stocks,” said Daniel Morgan, senior portfolio manager at Synovus Trust, which owns Micron shares. “It’s a good time to go and get the US involved in your shares.”

Betting on SK Hynix has been difficult, if not impossible, for the majority of American investors.

Like Micron, the second-best performer in the S&P 500 this year with a scorching 242 per cent gain, the company is benefiting from soaring demand for high-bandwidth memory chips.

But owning SK Hynix’s South Korea-listed shares outright means off-hours trading in the US. The other alternative is buying unsponsored American depositary receipts, or ADRs, over the counter.

Not only are the unsponsored ADRs performing worse than SK Hynix’s South Korea shares, but liquidity is also severely limited, making trading them a challenge.

SK Hynix’s Nasdaq listing, which is expected on Jul 10, should change that and improve the company’s lagging valuation.

SEE ALSO

South Korea to create fund from chip windfall to spur growth, tackle inequality

SK Hynix overtakes Samsung to become South Korea’s most valuable company

Investors look beyond TSMC as AI boom spreads to new winners

South Korea’s surging equity volatility draws meme-stock comparisons

Global AI debt issuance to top US$500 billion in 2026: Morgan Stanley

SK Hynix is said to weigh 0.5% fee payout in mega ADR offering

SK Hynix, Micron solidify memory chips as runaway stars of AI

SK Hynix seeks 45.45 trillion won with US listing to fund AI boom

More

The South Korean firm trades at 6.2 times estimated earnings over the next 12 months. Micron is currently at seven times after the shares tumbled 14 per cent last week, their worst performance since March, but it was over 11 times as recently as Jun 22. 

“The offering targets investors who currently lack access to the Korean equity market,” said Di Zhou, portfolio manager at Thornburg Investment Management, which owns SK Hynix shares. “SK Hynix’s Nasdaq listing provides direct, frictionless exposure to one of the most compelling pure-plays on the AI memory cycle.”

Over the past 12 months, SK Hynix’s South Korea-listed shares and Micron’s stock have gained about 700 per cent, pushing both companies’ market capitalisations above US$1 trillion.

The rallies are hardly unique among memory and storage companies. Sandisk has led the S&P 500 in that time, soaring 3,676 per cent, while Western Digital is up 719 per cent and Seagate Technology has jumped 449 per cent.

Overall, the Philadelphia Stock Exchange Semiconductor Index has gained 125 per cent in the past 12 months and is coming off its best quarter ever. 

Good times roll

But investors are increasingly nervous about how much longer the good times can last.

The tech giants driving the bulk of the memory demand, including Alphabet and Microsoft, are increasingly turning to debt and equity markets to fund spending that until recently was coming from their cash piles.

Those capital expenditures have sent memory chipmakers’ profits through the roof. But if the spigot gets turned off, the whole dynamic will change.

“Investors run the risk of stepping into something that’s potentially a speculative bubble,” said Ed O’Gorman, chief executive officer at River Wealth Advisors. “You have to be very careful investing in anything that’s up the way these stocks have climbed.”

In the meantime, SK Hynix’s ADRs will undoubtedly appeal to many US investors seeking more ways to bet on the biggest beneficiaries of AI spending. 

“There are a lot of people who don’t own anything in this space, so it coming to market could draw people who have not bought in yet,” said Kim Forrest, chief investment officer and founder of Bokeh Capital Partners, which owns Micron shares.

She plans to sit out the offering due to some of the discrepancies surrounding governance of ADR listings, but she expects plenty of her peers to line up for a piece.

SK Hynix is projected to deliver 221 trillion won (US$144 billion) in net income in 2026 on sales of 355 trillion won, up 415 per cent and 265 per cent, respectively, from 2025.

Micron is expected to post an 876 per cent surge in net income to about US$83 billion in its current fiscal year, which ends Aug 31, on a 247 per cent leap in sales to US$130 billion.

In an effort to keep up with demand, SK Hynix is planning to spend hundreds of billions of dollars to build two production plants in South Korea, as is rival Samsung Electronics.

SK Hynix’s offering will help fund those commitments. But adding capacity also raises the spectre of a potential supply glut down the road if demand cools off.

The memory industry is notorious for its boom and bust cycles. Just three years ago, Micron and SK Hynix lost money after a demand slump caused prices for memory chips to tumble. 

One clear benefit from the offering is it will provide SK Hynix with access to US equity indices, which would result in buying from passively managed exchange-traded funds that track the benchmarks.

For example, the Invesco QQQ Trust Series, better known by its ticker QQQ, tracks the technology-heavy Nasdaq 100 Index and has US$482 billion in assets.

Arbitrage opportunity 

Wall Street bulls point to the deeper pool of capital, the ability to trade the shares during regular market hours and an eventual addition to the Nasdaq 100 as reasons to be optimistic about the ADRs.

What is more, the US listing will attract trading from hedge funds seeking to capitalise on arbitrage opportunities between valuation differences in the Nasdaq-listed ADRs and the Seoul-listed shares – a playbook used in previous offerings by Alibaba Group and Taiwan Semiconductor Manufacturing Company. 

“Because of the cross-market structure, there will be potentially premiums and discounts between the pair,” said Brendan Ahern, chief investment officer of KraneShares, which owns Micron stock. “That will bring in arbitrage players and enhance the stocks’ liquidity.”

It is unclear if investors can freely exchange the SK Hynix ADRs for the Korean shares, a feature that could determine whether the price differences persist and how arbs will set up their trades.

Full convertibility would allow investors to exchange the two securities and keep prices closely aligned, while restrictions could leave the US listing at a sustained premium.

This dynamic is playing out with Taiwan Semiconductor, where the average premium of the ADRs over the local price is more than 21 per cent in the last year and currently around 13 per cent, based on data compiled by Bloomberg. 

Perhaps most importantly, investors will be focused on SK Hynix’s ability to close its valuation gap with Micron.

The offering may be attractive to US investors ranging from long-only portfolio managers seeking to increase exposure to the booming share prices of memory stocks, to hedge funds that focus on IPOs and other types of equity issuance. 

Synovus Trust’s Morgan, who holds a small amount of SK Hynix through over-the-counter depositary shares, is curious about the new ADRs but is taking a wait-and-see approach when it comes to any purchases. 

“It’s going to be a very hot issue,” he said. “We’re going to have to let it hit the tape and go from that.” BLOOMBERG