SK Hynix Leads in AI Chips, Outshines Samsung in Profit

Key Takeaway

• SK Hynix and Samsung emerge as key players in the AI-driven memory chip market, with SK Hynix preferred for its focus on high bandwidth memory technology.
• SK Hynix reports net profit and leads in HBM3E chips production, signaling strong positioning in the AI hardware supply chain.
• Despite Samsung's diverse portfolio possibly diluting its appeal, it's expected to catch up in the memory chip race, offering potential investment upside.

AI Boom Fuels Chipmakers

The artificial intelligence (AI) revolution has significantly impacted the tech industry, particularly benefiting companies involved in the production of AI-related hardware. Nvidia, known for its dominance in the graphics processing unit (GPU) market, has seen its stocks soar, bringing attention to other key players in the AI supply chain. This chain spans across the Asia-Pacific region, encompassing manufacturers of AI GPUs, printed circuit boards, and notably, memory chips. Memory chips, essential for high-performance data processing in AI applications, have seen increased demand, especially those used in Nvidia’s H100 GPUs. Among the companies leading this sector, Samsung and SK Hynix have emerged as prominent figures, with both reporting strong earnings recently.

Samsung vs. SK Hynix: The Memory Chip Race

Samsung, the world's largest manufacturer of dynamic random-access memory (DRAM) chips, and SK Hynix, a primary supplier of high bandwidth memory (HBM) chips to Nvidia, are at the forefront of the memory chip market. SK Hynix recently announced its industry-leading mass production of HBM3E chips, further solidifying its position. The company's success in breaking a streak of net losses with a net profit in the first quarter has sparked a debate among investors and analysts about which company represents a better investment opportunity in the wake of the AI boom.

Expert Opinions Diverge

Trent Masters from Alphinity Investment Management and Nam Hyung Kim from Arete Research both express a preference for SK Hynix, citing its early leadership in HBM technology and its role as a pure-play memory stock. They argue that SK Hynix's focus on memory, particularly its advancements in HBM3 and the upcoming HBM4, positions it well for future demand. Conversely, Samsung's diverse portfolio, which includes consumer appliances and smartphones, alongside challenges in its foundry business, may dilute its appeal as a memory investment.

However, Sung Kyu Kim of Daiwa Capital Markets presents a nuanced view, acknowledging the strong memory upturn cycle benefiting both companies. He suggests that while SK Hynix has maintained its lead, Samsung is expected to catch up, potentially offering more upside to its stock price in the near term. This perspective highlights the dynamic nature of competition in the memory chip market and suggests that investment opportunities may vary based on market timing.

Street Views

• Trent Masters, Alphinity Investment Management (Bullish on SK Hynix):

  "First I think their early leadership in HBM3 stands them in good stead with customers as HBM demand continues to increase materially... While Samsung and Micron are starting to close the technology gap, the trust and dependability of SK Hynix during the initial HBM ramp will ensure that they will retain a strong presence with these customers into the future."

• Nam Hyung Kim, Arete Research (Bullish on SK Hynix; Neutral on Samsung):

  "SK Hynix stands out as a pure-play memory stock with leadership in AI technology, dominating the High Bandwidth Memory (HBM) market, which is crucial for AI servers... Consequently, we recommend investors remain cautious with Samsung and consider pure-play memory firms like SK Hynix until Samsung can showcase renewed technological leadership in memory."

• Sung Kyu Kim, Daiwa Capital Markets (Bullish on both Samsung and SK Hynix):

  "[But I] also anticipate a buying opportunity on SK Hynix once it is adjusted due to intensifying competition in HBM3E."