SK Hynix's Record Quarter Got Buried in a Week of Historic Whiplash

SK Hynix posts record profits but stock crashes on 40T won CapEx plan, then rebounds 30% in historic short squeeze.

The numbers on the earnings release were the best the company has ever produced. The numbers on the trading screen told a far messier story.

South Korea's SK Hynix delivered its fifth consecutive record quarter in late July, with operating profit hitting 60.54 trillion won — up 61 percent from the prior quarter and 557 percent year over year — on record revenue of 79.3 trillion won. The operating margin reached a staggering 76 percent. Yet the stock spent the surrounding sessions lurching between a historic crash and a historic rally, leaving investors to sort out whether the AI memory cycle is a structural shift or just another boom destined to end in oversupply.

The CapEx Shock That Started It All

The turbulence traces back to a single announcement: SK Hynix confirmed plans to lift 2026 capital expenditures to roughly 40 trillion won, or about $31 billion — a 59 percent increase over 2025. The spending is aimed at defending the company's dominant position in high-bandwidth memory (HBM), the specialized chips that power AI accelerators.

Markets initially read the figure as a margin threat. Over 30 days, the stock shed 32.89 percent. At its worst, the shares had fallen roughly 58 percent from their June 25 peak within three days, with trading halts triggered on July 28 and 29 — the first time in the exchange's history that circuit breakers fired on two consecutive days.

Then came Friday, and a complete reversal. The stock hit the exchange's daily limit of 30 percent, closing up 29.95 percent at 1,718,000 won — the best trading day in the company's history.

Leverage Amplified Both Directions

Analysts point to leveraged products as a key accelerant in both the sell-off and the rebound. When the stock tumbled 15 percent on July 13, leveraged ETFs were forced to unload roughly $5 billion of SK Hynix shares, according to Bloomberg estimates — about 18 percent of that day's total trading volume.

Friday's surge ran the mechanism in reverse. Strong overnight gains in US chip stocks forced short sellers of Korean tech names to cover positions, creating a classic short squeeze that pushed the stock even higher. The iShares Semiconductor ETF jumped more than 8 percent overnight after Amazon and Microsoft posted quarterly results that reignited enthusiasm for AI infrastructure spending.

The broader Korean market joined the party. The Kospi index closed July 31 with a gain of 17.91 percent — its largest single-day advance ever — after falling more than 20 percent in July and touching a low of 5,262.77 points, a 43.9 percent drawdown that exceeded even the March 2020 COVID crash.

A Chairman's First-Ever Purchase

Adding fuel to Friday's rally was an unusual signal from the top. SK Group Chairman Chey Tae-won bought shares of the chipmaker directly for the first time — 3,620 shares worth approximately 4.79 billion won. By the time the stock hit its daily limit, his paper gain stood at roughly $923,000.

The flows showed a clear pattern: foreign investors bought semiconductor stocks net worth 7.78 trillion won, institutions added 331.3 billion won, while retail investors sold 8.01 trillion won net — exiting the rally just as the big players piled in.

The Bull Case: A Supply Squeeze With No Easy Fix

For optimists, the fundamental picture remains compelling. SK Hynix controls 58 percent of the global HBM market, giving it substantial pricing power during a period of historically tight supply. Industry estimates suggest hyperscaler AI infrastructure spending could exceed $1 trillion in 2026, with memory chips claiming roughly 30 percent of that.

The company's new M15X fab in Cheongju is slated to begin mass production in the second half of 2026 — capacity that could prove decisive in the transition to the next-generation HBM4 standard. SK Hynix also says it has locked in long-term supply agreements with more than ten major customers, a revenue base that previous cycles lacked.

Wolfe Research analyst Chris Caso remains constructive on memory stocks, citing tight supply and strong AI demand. He considers a meaningful oversupply unlikely before 2028, simply because building new fabrication capacity takes years.

Even after the recent correction, the stock remains up 164.43 percent year to date — evidence that many investors still believe in SK Hynix's central role in the AI buildout.

The Bear Case: The Cost of Leadership

The most obvious risk is the sheer scale of the spending. The planned $31 billion in capex implies significantly higher depreciation charges and operational risk. Meanwhile, rival Samsung is stepping up its efforts, having already shipped HBM4 samples to customers.

The stock's annualized 30-day volatility of 152.53 percent shows just how sensitive the market has become to any sign of cooling in AI investment. Despite Friday's surge, the shares remain 42.48 percent below their record high of 2,987,000 won, reached in late June. The stock also sits roughly 21 percent below its 50-day moving average — a sign that the downward momentum of recent weeks hasn't been fully reversed.

Two China-related headlines had helped fuel the earlier sell-off: Chinese memory maker CXMT raised $8.6 billion in a Shanghai IPO and surged 466 percent on debut, while reports circulated that China had begun mass-producing its own lithography equipment for chip manufacturing.

What to Watch Next

As long as SK Hynix maintains its elevated operating margin, the market is likely to treat the heavy investment as strategic necessity rather than a drag. But delays in integrating the M15X line, or HBM4 yields missing internal targets, could put the valuation under pressure again.

The next concrete milestone is the first cleanroom phase at the Yongin cluster, scheduled for early 2027. In the nearer term, much depends on whether the stock can hold above the 1.7 million won level — a sustained hold above that mark would be needed to definitively break the recent downtrend.

Korean authorities are watching the leverage risks closely and weighing stabilization measures, including activating the state market stabilization fund and potentially reinstating a short-selling ban. Whether Friday's surge marks a genuine turning point or just another swing in an increasingly volatile AI cycle may not be clear for several more trading weeks.