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31 January 2025

SK Hynix Stock Hit Hard By AI Startup Competition

Investors react to market pressures as DeepSeek disrupts the semiconductor industry.

On January 31, 2025, SK Hynix faced substantial stock market fluctuations following the opening of the trading session after the Lunar New Year holiday. The company saw its share price tumble by 8.37%, trading at 200,250 won, as fears about the competitive AI industry emerged and concerns over the profitability of semiconductor products, particularly NAND chips, escalated.

According to reports from the Korean Exchange, the downward trend was dramatic, with SK Hynix’s stock plunging almost 12% shortly after market opening. Other semiconductor companies, such as Hanmi Semiconductor, also experienced significant losses, with the latter dropping 6.28% to 112,900 won. The cascade of declines was not limited to chip manufacturers; power equipment firms like Gaon Cable and Samhwa Electric also suffered considerable dips of over 10%. This wave of losses prompted analysts to assess the broader ramifications of developments within the AI sector.

The emergence of DeepSeek, a Chinese AI startup, has raised concerns within the industry due to its ability to demonstrate AI performance comparable to leading technology firms at significantly lower costs. This presents potential challenges for established semiconductor companies, which had previously thrived on the high-value propositions of their AI-focused products. Enews Today reported, "DeepSeek demonstrates AI capabilities comparable to major tech firms at lower costs," highlighting the disruptions this startup poses to the market.

Investor nervousness heightened earlier, as evidenced by NVIDIA’s staggering 17% drop on the New York Stock Exchange. This reflected widespread concerns among investors about the viability and profitability of AI semiconductor firms amid competitive threats. This suggests the industry may be approaching turbulent waters, necessitating careful scrutiny of future performance metrics.

Turning to the outlook for SK Hynix, analyst estimates from Mirae Asset Securities shed light on the company’s anticipated performance for the first quarter of 2025, projecting notable challenges. The report stated, "1Q25 performance expected to stagnate, with NAND pricing pressure," with expectations of decreased prices for NAND chips heavily affecting revenues. This is coupled with the anticipation of weak demand due to excess inventory levels around the globe.

The analysis suggested significant variance in product segments, indicating some resilience within the company’s offerings. While NAND chip prices may be under pressure, the high-bandwidth memory (HBM) segment is projected to thrive. Despite lower average selling prices (ASP) for conventional DRAM, the report indicated, "HBM impact expected to drive recovery later," pointing to this product segment’s capacity to strengthen margins. Mirae asserted, "The future operational profit is expected to show significant improvement, with HBM components becoming increasingly valuable," painting a cautiously optimistic picture for investors amid current volatility.

The adjustments to SK Hynix's target price reflect analysts' recalibrations of expectations for the semiconductor sector; the reported target price was raised by 2.6% to 277,000 won from the previous 270,000 won. While this increase is minor, it points to broader market sentiments stabilizing around the stock, with analysts maintaining comparable views on the company’s trajectories amid recent fluctuations. The average target price from other firms remained around 272,167 won, symbolizing agreement among analysts about SK Hynix's perceived relative stability.

Given the intense competitive pressures introduced by AI innovations, SK Hynix's stock market activity serves as another data point amid transitioning dynamics within the semiconductor industry. The dual challenge of grappling with price drops coupled with increasing competition may test the resilience of companies like SK Hynix.

Despite these fluctuations, anticipative forecasts suggest SK Hynix could soon see its financial metrics climb. Analysts project significant rebounds starting from the third quarter of 2025, eventually setting records for operational profit driven by re-focusing on high-margin products like HBM.

This market snapshot provides stakeholders with important insights, reflecting the balance of caution and optimism prevailing within South Korea's semiconductor sector. Understanding this duality is key for investors as they navigate the uncertain waters of AI’s rapid evolution and its burgeoning ramifications on traditional semiconductor supply chains.