Nvidia Supplier SK Hynix Posts Highest Quarterly Profit Since 2018 Amid Soaring AI Chip Demand

South Korea’s SK Hynix, a major supplier for Nvidia, reported its highest quarterly profit since 2018, driven by strong demand for AI chips. This demand is expected to continue growing, particularly for high bandwidth memory (HBM) used in AI chipsets.

AI Demand

SK Hynix’s Head of DRAM Marketing, Kim Kyu Hyun, stated in an earnings call that AI demand is exceeding expectations and projected that next year’s HBM shipments would more than double this year’s. Despite this positive outlook, SK Hynix shares fell by as much as 8.4% in morning trade, mirroring declines in U.S. tech shares, including Nvidia, due to investor disappointment in tech firms’ earnings.

World’s Second-Largest Memory Chip Maker

SK Hynix, the world’s second-largest memory chip maker, has capitalized on the growing demand for high-end chips and enterprise solid-state drives (eSSDs) thanks to its early investment in these areas. The company reported an operating profit of 5.47 trillion won ($3.96 billion) for April to June, the highest since the third quarter of 2018. This is a significant improvement from a loss of 2.9 trillion won a year earlier and aligns with analyst predictions.

Revenue increased by 125% to a record 16.4 trillion won, fueled by high demand for advanced DRAM chips like HBM, which are used in data center servers and AI-driven gadgets. CFO Kim Woohyun noted that DRAM prices are rising even without a full recovery in traditional buyer demand, as chipmakers focus on producing HBM.

Leading Player

SK Hynix is a leading player in the HBM market and is the main supplier of these chips to Nvidia, competing with Samsung Electronics and Micron from the U.S. Nvidia dominates about 80% of the AI chip market.

SK Hynix started mass production of its fifth-generation HBM chips, known as HBM3E, in March, with initial shipments going to Nvidia. The company plans to ship the 12-layer HBM3E chips starting in the fourth quarter and introduce HBM4 chips in the second half of 2025.

HBM3 chips

Samsung has not yet met Nvidia’s standards for HBM3E chips but has had its fourth-generation HBM3 chips approved by Nvidia for use in less advanced graphics processors for the Chinese market.

Analyst Lee Min-hee from BNK Investment & Securities noted that while SK Hynix aims to maintain its technical leadership, meeting high investor expectations may be challenging, and short-term stock price increases may be limited.

Analysts Prediction

Analysts predict that HBM could account for 20% of SK Hynix’s DRAM profit by the end of 2024, up from nearly 0% in the first half of 2023, as Nvidia accelerates plans for next-generation graphics processors in response to the AI boom.

In May, SK Hynix CEO Kwak Noh-Jung mentioned that the company’s HBM chips were sold out for this year and almost sold out for 2025. SK Hynix shares, considered a top stock pick for the AI boom in South Korea, have risen 47% year-to-date as of Wednesday.