South Korean chipmaker SK Hynix plans to raise up to $29.4 billion by listing its American Depositary Receipts (ADRs) on the Nasdaq in the United States. If the deal goes through at the expected price, it will become one of the biggest share sales in the world. The company is taking advantage of strong investor interest in artificial intelligence (AI) stocks.
WHAT IS SK HYNIX OFFERING?
SK Hynix is one of the world’s biggest memory chip makers and is a major supplier of high-bandwidth memory (HBM) chips, which are used in AI systems. Its customers include Nvidia and Google, which use these advanced memory chips for AI computing.
The company has filed to offer 177.9 million American Depositary Shares (ADSs) on the Nasdaq under the ticker SKHY, according to the company’s prospectus filing. Every 10 ADSs will represent one common SK Hynix share. The final IPO price has not been decided yet. It will be fixed after discussions with underwriters and after the bookbuilding process.
The company plans to issue 17.79 million new common shares through the ADR offering. The bookbuilding process will begin on July 6, the final price is expected on July 9, and trading on Nasdaq is expected to begin on July 10, according to Reuters.
WHY INVESTORS ARE INTERESTED?
Three major investors have shown interest in buying the shares:
- Baillie Gifford Overseas
- Coatue Management
- Situational Awareness Partners
Together they have expressed interest in purchasing up to $7 billion worth of ADRs, according to Reuters and the company filing. However, Reuters said these are only indications of interest and are not binding commitments, meaning the investors can still change the amount they buy.
HOW AI IS DRIVING SK HYNIX GROWTH
On the day the ADR sale was announced, SK Hynix shares fell 3.4% in South Korea, while the broader KOSPI index slipped 0.5%, according to Reuters. Despite that daily decline, SK Hynix’s stock has surged about 260% this year.
The company’s massive rally has been driven mainly by the AI boom, which has sharply increased demand for advanced memory chips. The company has performed better than rivals Samsung Electronics and Micron during the AI boom.
Dan Coatsworth, head of markets at AJ Bell told Bloomberg, SK Hynix is planning to “capitalize on global investor interest with a US stock listing”.
He further added, “The big question is whether this listing has come a little too late. Memory chip stocks have lost momentum in recent weeks, but investors might take the view that SK Hynix has solid long-term prospects rather than just being a flash in the pan.”
SK Hynix is now valued at about $1.2 trillion. The money raised from the U.S. listing will mainly be used to build new semiconductor factories in South Korea, buy advanced chipmaking equipment and to purchase expensive extreme ultraviolet (EUV) scanners made by Dutch company ASML. The investment is aimed at increasing SK Hynix’s production capacity to meet growing AI demand.
WHY THE NASDAQ LISTING MATTERS: EXPERT OPINIONS
Ryu Young-ho, senior analyst at NH Investment & Securities, said,” The most attractive benefit for investors is that SK Hynix will trade on Nasdaq alongside rival Micron, giving the company an opportunity to be re-rated in the U.S. market”, as reported by Reuters.
He further said, “That could also be reflected in its Korea-listed shares as investors increasingly link the two valuations.”
Expectations for the U.S. listing have already helped push SK Hynix’s shares much higher this year. Di Zhou, portfolio manager at Thornburg Investment Management, told Reuters, “We are in the midst of a memory super cycle, with all three major suppliers – Samsung, SK Hynix, and Micron – riding the AI driven demand wave.”
She also said SK Hynix’s U.S. listing is positive because it will attract more investors and could reduce the valuation gap with Micron.
Dave Mazza, CEO of Roundhill Investments, said,”This is more than a liquidity event.” “SK Hynix has been one of the most important companies in the world that most U.S. institutions could not easily own”, he added. Mazza further said, “The listing removes an accessibility discount, not a quality discount.”
Steve Sosnick, chief strategist at Interactive Brokers, said, “The new listing will make it easier for capital-hungry Hynix to directly access a new group of momentum-hungry investors”, while speaking to Reuters.
Sosnick believes smaller investors and institutions will benefit the most from the U.S. listing. Some analysts remain cautious because memory chip prices have risen rapidly. They worry that higher memory prices, or “memory inflation,” could reduce spending on AI infrastructure, smartphones and personal computers, according to Reuters.
Analysts at Capital Economics said the recent sharp swings in the stock market are worrying. They noted that similar selloffs have previously happened only during major bear markets, such as the Asian financial crisis, the dot-com bubble, and the Great Financial Crisis.
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James Reilly, senior markets economist at Capital Economics, said, “This volatility is, in our view, evidence of excessive froth and calls into question the sustainability of this rally”, as reported by Fortune.
WHAT EXPERTS ARE WARNING
Sundeep Gantori, Chief Investment Officer of Equities at Standard Chartered, said: “We expect better access, but timing of the memory cycle is equally important.” He added, “We believe memory cycle is beyond the early phase and now in the mid-cycle stage.”
Gary Tan, portfolio manager at Allspring Global Investments, said, “The ADR listing should not materially change our view on SK Hynix or the memory sector.” He further said, “The headline capital raise appears large but implies only limited dilution and remains modest relative to its mid-term capex plans”, as reported by Reuters.
HOW SK HYNIX MADE A COMEBACK
The company has come a long way. Around 20 years ago, SK Hynix was struggling with heavy debt and nearly collapsed. The strong AI boom has completely changed the company’s fortunes, helping it become one of the biggest winners in the global semiconductor industry, according to Reuters.
Overall, SK Hynix is using the strong demand for AI chips and growing investor interest to raise billions of dollars, expand production, strengthen its global position and attract more U.S. investors through its Nasdaq listing.
