A Chinese memory maker gave SK Hynix (NASDAQ:SKHY) investors something new to worry about last week. ChangXin Memory Technologies, known as CXMT, said it had made progress on a denser DRAM design. It plans to ship server memory built on that design by the end of this year, according to Yahoo Finance. The claim hasn’t been independently verified, but memory stocks sold off anyway.
That reaction sits oddly beside the latest results. In its most recent reported quarter, SK Hynix earned a 76% operating margin, up from 41% a year earlier. Revenue was 257% higher than in the same quarter a year before. Yet the stock trades at a small fraction of the sector’s multiple, as if that profit is about to shrink. The business looks sturdier than that valuation implies, although CXMT’s claim hasn’t been put to the test.
SK Hynix makes the memory chips that AI data centers rely on, including high-bandwidth memory, known as HBM, and DRAM for AI servers. Its customers are mostly the companies building out AI infrastructure, and the company says their spending is what drove the latest record. The company is also one of the 10 Best Stocks to Buy with High Return Potential.
Profits Have Grown Faster Than Sales
The record follows years of fast growth, with revenue up about 20% a year and earnings per share up about 49% a year over the past five years. Profit outpaced sales because a growing share of each sale turned into profit as memory prices climbed. For investors looking for high-growth chip stocks, our list of 12 High Growth Semiconductor Stocks to Buy Now covers more names.
In the latest quarter, the gap widened as net profit came in larger than revenue itself. That means gains outside the chip business helped. Operating profit is the cleaner guide to how the core business is doing, and it was strong on its own.
Contracts and Cash Back the Margin
SK Hynix says it has signed multi-year contracts with around 10 key customers, and it began mass shipments of its newest HBM, called HBM4, in the second quarter. If you’re interested in HBM4 suppliers, we recently compiled a report on 10 Best High-Bandwidth Memory (HBM4) Value Chain Stocks to Buy According to Hedge Funds.
Cash adds to the case, since net cash of 69.4 trillion won gives the company room to add capacity. It plans to speed up work at its M15X plant and expand further once a new Yongin cleanroom opens in early 2027. It also says it will keep capital spending disciplined.
China and Solidigm Are the Risks
The objection is that none of this guarantees prices hold. The same Yahoo Finance report says SK Hynix’s very high margin is what CXMT’s design would threaten if the Chinese company can make the chips in volume at competitive prices. That is a real risk, but CXMT’s own timeline points to the end of this year, and the claim itself is unproven.
A second worry involves Solidigm, SK Hynix’s data-storage unit. Bloomberg reported it is weighing a US listing as soon as next year, and some investors fear another layer of ownership would complicate the group’s structure. For a shareholder, the first risk is to the margin and the second is to how much of Solidigm’s future earnings stays with SK Hynix.
What the Low Multiple Assumes
On reported earnings, SK Hynix trades at about 5.3 times estimated 2026 earnings, compared with a sector median of about 28.7. Using 2027 estimates, the multiple falls to about 4.3, with earnings expected to grow about 24% that year. Those figures use reported earnings, which include the gains outside the chip business, so they likely make SK Hynix look cheaper than operating profit alone would. A five-year average isn’t available because the shares only began trading in the US this summer. If you’re looking for undervalued AI stocks, check out 10 Undervalued AI Stocks to Buy Now.
Even after that adjustment, a gap this wide says the price assumes margins will fall rather than stay near today’s level. If you own the stock, you’re backing a business that is earning more than ever at a price that expects less.
Will the margin last? So far, multi-year contracts and a large cash cushion say yes, while CXMT’s claim is still only a claim. The thing to watch is the third-quarter report due next week, which will show whether the operating margin stayed close to its record.
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This article is originally published at Insider Monkey.
