Earnings Preview | After a 30% Stock Decline, SK Hynix (SKHY.US) Faces a Major Earnings Test: Can HBM4 Ramp-Up and DRAM Price Increases Reignite Its Rally?

SK Hynix (SKHY.US) will report its fiscal 2026 third-quarter results on October 28. Since listing on Nasdaq in mid-July 2026, the stock has experienced a period of sharp volatility, with its share price swinging from $124.8 to $199.87 per share over the past three months. In the few trading days before SK Hynix announced its fiscal 2026 second-quarter results in late July, the stock fell by more than 25% at one point. But after the Q2 results came out and the market saw SK Hynix's stunning operating performance, the stock rose 57% in less than two months. Now, ahead of another earnings report (October 28), the stock is trading lower, down about 28% from its all-time high. Although the second-quarter results themselves were not without blemishes, according to compiled data, the market consensus had expected second-quarter revenue of $56.79 billion, while SK Hynix actually reported $54.55 billion, nearly 4% below the revenue consensus, which may have been the reason the stock initially came under pressure after the report. However, management subsequently explained the key reason for the revenue miss: SK Hynix decided to lock in about 50% of shipments under multi-year long-term agreements (LTAs), a practice similar to the current strategy of memory makers such as Micron (MU.US). SK Hynix deliberately gave up the flexibility brought by short-term spot market price surges in exchange for a more predictable cash flow growth outlook. At the same time, the company also deferred some high-value DRAM and HBM shipments from Q2 to the second half of 2026 to ensure customer deployments proceed as planned. As a result, the post-earnings stock decline did not last long. In fact, another layer of risk weighing on the current share price comes from macro factors and the technological progress of Chinese memory maker ChangXin Memory Technologies. However, analyst Oakoff Investments does not believe these factors represent a substantive change for SK Hynix and its peers. First, factors such as macro risks related to the debt market and rising yields have not directly hit SK Hynix, because the company currently does not need to raise financing through debt issuance; its key customers may need to raise funds, but as the main end customers, hyperscale cloud providers currently appear to have no obstacles to financing. Second, the market discussion of ChangXin Memory's progress is mainly focused on commoditized DRAM and lower-end architectures, which are far removed from SK Hynix's focus on high-density HBM4 and advanced packaging. The analyst believes it is currently almost impossible for ChangXin Memory to shake SK Hynix's moat, so it does not constitute a medium-term risk. On profitability, SK Hynix reported operating profit of about $45.2 billion on revenue of $54.55 billion in Q2, with an EBIT margin of 76.3% in won terms. By comparison, Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSM.US) had a Q2 EBIT margin of 60.3%, and Micron had a Q1 margin of 67.6%. Oakoff Investments noted that SK Hynix's current profitability has surpassed that of the world's best pure-play foundry, proving its extremely strong pricing power. Shipments of server DDR5 and high-capacity HBM3E/HBM4 helped the company achieve a significant price advantage in its DRAM business unit, with Q2 DRAM blended average selling price rising 30% quarter over quarter; NAND Flash average selling price jumped more than 50% quarter over quarter. Although the market had previously worried that advances in optimization algorithms could lead to a decline in NAND demand, hyperscale cloud providers are currently still expanding context windows and KV cache storage for AI inference models, and the analyst believes this trend will not stop next year. On product progress, SK Hynix began mass production and shipment of 12-layer HBM4 chips to key customers in Q2. On the earnings call, the company said that HBM4 yield and quality are now close to the level of HBM3E, which is already in a mature stage, and the current focus is on steadily ramping capacity. Oakoff Investments noted that this provides important support for SK Hynix's subsequent earnings growth, because given that such yield levels were already achieved in the second quarter, it means the risk of high scrap losses in the early stage of mass production has been greatly reduced. Unit costs are expected to continue declining, and as long as HBM dual-layer stacking reaches sufficient scale, the high operating margin seen in the second quarter has a basis for continuation. As for the upcoming third quarter, management confirmed on the call that the expansion pace of blended DRAM average selling price in the second half should be faster than in the first half: "As HBM4 shipments truly ramp up and 1c-nanometer conventional DRAM shipments increase, we expect bit growth in the second half to be higher than in the first half. In addition, considering changes in customer demand and product mix, the continued growth of HBM4 sales and the increased contribution of high-value-added products will also have a positive impact on our blended average selling price. This will bring higher shipments and continued product mix improvement, thereby driving up our average selling price and profitability in the second half." It is understood that the company guides third-quarter DRAM bit shipments to grow 10% quarter over quarter. After HBM4 yields meet targets, this portion of additional shipments will maintain high gross margins. Even if SK Hynix beats earnings expectations as it did in the second quarter, the results themselves are not the only focusguidance is the core. Based on this, Oakoff Investments remains optimistic. According to TrendForce data, DRAM contract prices in the third quarter of 2026 should rise 13% to 18% quarter over quarter, while NAND flash contract prices are expected to rise 10% to 15%. But in the fourth quarter of 2026, the institution expects DRAM prices to grow 20% quarter over quarterin Oakoff Investments' view, the pricing environment is becoming increasingly unfavorable for buyers and increasingly favorable for sellers such as SK Hynix. For the upcoming Q3 results, compiled data show that the market expects SK Hynix to report adjusted earnings per share of $6.25, GAAP earnings per share of $6.12, and revenue of $74.81 billion. Over the past 90 days, there have been 0 upward and 1 downward revision to EPS estimates. The analyst believes that, given one negative revision already after Q2, it will not be difficult for SK Hynix to beat expectations this time. On valuation, the current market consensus for SK Hynix's EPS for fiscal 2026 to 2028 is $26.31, $32.73, and $41.08, respectively, corresponding to year-over-year growth of 24.41% and 25.52%; based on fiscal 2027 EPS, the forward price-to-earnings ratio is only 4.37x, and 5.43x and 3.48x for fiscal 2026 and 2028, respectively. Oakoff Investments believes that for a semiconductor company with EPS growth exceeding 24%, this valuation looks too low, but memory stocks have strong cyclical attributes, so it is not surprising that the market applies a discount. However, because the market expects the company's fiscal 2028 EPS to still grow 25.52% year over year, it means fiscal 2027 is not the cyclical peak. Based on this, the analyst assumes SK Hynix's fiscal 2027 EPS at $35, slightly above the consensus midpoint, and assumes growth of more than 25% in fiscal 2028, assigning a 5x to 8x price-to-earnings ratio for fiscal 2027, arriving at a target price of about $227.5. Bank of America Corp analysts are also relatively positive on SK Hynix's outlook. In a research note, the bank mentioned that BofA believes SK Hynix may provide a strong fourth-quarter outlook on October 28, including a special cash dividend; Taiwan region of China's Nanya Technology has already issued a positive fourth-quarter forecast. BofA also noted that monthly PC memory contract prices have risen by more than 15%, while spot prices remain stable. However, BofA also mentioned that investor feedback in Singapore on the memory cycle is divided: hedge fund investors are bearish, while most long-only investors remain bullish. Market concerns include high borrowing costs for AI cloud companies, increased memory supply from China, and slowing AI spending. The analyst also listed the main risks: first, the memory cycle often turns when few people notice; second, services such as TrendForce and Semianalysis make memory price dynamics highly transparent to tech investors, so SK Hynix's earnings beat may already be priced in, and even if the company significantly beats expectations and gives strong guidance, the stock may not react positively in a logical way; third, if the company's results miss expectations, the stock could fall sharply; fourth, the potential impact of Chinese competitors may be underestimated, and if Chinese manufacturers prove that their technology is comparable to that of SK Hynix and Western peers, the market could severely punish all memory stocks. Despite the considerable risks, Oakoff Investments still believes SK Hynix is likely to exceed upcoming earnings expectations, and management guidance could bring an upside surprise. Its judgment is based on: the current memory cycle does not appear close to peaking soon, and there is still substantial operating upside next year; SK Hynix, with high margins that have not yet shown signs of deterioration, remains one of the purest leaders in the industry, and its margins have not yet deteriorated; its valuation model shows the company is undervalued by more than 67%, with convergence expected over the next 12 months or so.