Summary of Key Points
SK Hynix reported record-breaking earnings for the second quarter of 2026 (both revenue and profit surpassed previous highs), yet its stock price plummeted by 9.61%, even falling to half of its June high. The reason is not poor performance, but rather results that fell short of market expectations. More importantly, the market is concerned that the "price increase cycle" in the storage industry has reached its peak: the rate at which storage chip prices have been rising, which drove substantial profit growth in the past, is slowing down, and future growth may be difficult to sustain. This phenomenon of "good performance but falling stock price" also occurred with Samsung, indicating that it's not a problem specific to individual companies but rather a sign of a turning point in the entire industry cycle. The market's pricing logic has shifted from focusing on the speed of price increases to how long profits can be maintained, which has implications for and caused differentiation within the A-share storage sector.
Detailed Analysis
1. Why did the stock price fall despite record-breaking performance? – Disappointment with expectations + Early reaction to negative news
SK Hynix's revenue for the second quarter was 79.32 trillion Korean won, 4.58 trillion won lower than analysts' forecast of 83.9 trillion won; its operating profit was 60.54 trillion won, 3.66 trillion won below the expected 64.2 trillion won. It's like scoring 90 out of 100 on a test (the best you've ever done) but still being criticized because teachers and parents expected you to score 95.
More significantly, the stock price had already peaked one month earlier (on June 25). In other words, the market had anticipated that performance would fall short of expectations through various signals (such as a slowdown in storage prices) and began selling shares in advance. The release of the financial report was merely an official confirmation of these concerns, so the day's decline was more like a final confirmation of the bad news.
The same situation occurred with Samsung: its stock price fell by 6.92% on the day it announced its high-growth results. Since both leading companies in the industry experienced this, the issue lies with the broader industry environment rather than individual firms.
2. The market is worried about future earnings, not current profits – The storage cycle is changing
The storage industry is highly cyclical: prices soar when supply falls short of demand and plummet when supply exceeds demand. In the past four quarters, SK Hynix's rapid profit growth was driven by soaring prices for general-purpose DRAM chips (up 60% in the first quarter of 2026 and 30% in the second quarter). However, the rate of price increases has significantly slowed down:
- TrendForce predicts that traditional DRAM prices will only rise by 13%-18% in the third quarter of 2026, while NAND Flash prices will rise by 10%-15%, far lower than the 60%-100% increases in the previous two quarters.
- Downstream manufacturers are also resisting price hikes: consumers are reluctant to buy more expensive phones/computers, and manufacturers do not want to continue bearing higher procurement costs. For example, PC manufacturers prefer to order fewer units rather than accept price increases, indicating that the price increase cycle is coming to an end.
The market's main concern is that price increases may peak soon, possibly starting to decline in 2027, leading to a decrease in storage company profits. The current high performance is merely a "last hurrah."
3. SK Hynix's dilemma: HBM fails to offset the impact on general-purpose DRAM
SK Hynix hoped to rely on its HBM chips (high-bandwidth memory used in AI servers, which are in high demand due to AI trends) to maintain growth, but this strategy has backfired:
- General-purpose DRAM profits were affected: To produce HBM, SK Hynix shifted its advanced production and packaging capacity, reducing the supply of general-purpose DRAM and missing out on price increases in the spot market (HBM uses chips that are three times more expensive than standard DDR5).
- HBM profit margins are fixed: HBM contracts are typically long-term (LTA), with prices set in advance and not subject to spot market fluctuations. As a result, SK Hynix's average DRAM selling price only increased by 30%, while the contract prices for general-purpose DRAM rose by 58%-63%.
In other words, while HBM was intended to compensate for the shortcomings of general-purpose DRAM, it did not help much and even reduced overall profits.
4. The market's pricing logic has changed: From "price increase speed" to "how long profits can last"
Storage stocks performed well in the past year because of the cycle of short supply leading to price increases and subsequent profit growth, with prices driving valuations higher based on the speed of price increases. However, with the slowdown in price increases, the story has changed:
- Valuation traps for cyclical stocks: The highest profits in cyclical industries often come at the lowest price-to-earnings ratios (P/E ratios), as P/E = stock price / earnings. SK Hynix's current P/E ratio of 5.8 seems low, but this is characteristic of a cycle peak; future profits may decline, making the current low ratio an illusion.
- Shift in focus: The market's valuation criteria have shifted from "how much profit can be made this quarter" to "how long these profits can be sustained." Therefore, even if performance reaches new highs, if future growth is uncertain, stock prices will fall.
When will the market bottom out? It will happen when either storage price increases stop slowing or downstream manufacturers accept higher prices again. Only when one of these two conditions is met will prices truly become "cheap."
5. Implications for the A-share storage sector: Who will be affected first, and who has opportunities?
SK Hynix's situation has a differentiated impact on A-share companies in the storage industry:
- First to be affected: Module manufacturers: Companies like Demingli, which previously profited from holding low-cost inventory, now face higher costs for new storage chips, leading to expected profit declines of 5.74%-29.65% for the second quarter.
- Later to be affected: Original equipment manufacturers (OEMs) and interface chips: Although price increases have slowed, demand for HBM/AI products is still supporting their profits; however, interface chip companies (like Lanqi Technology) will be impacted later, with declines only occurring when server DDR5 shipments slow down.
- Opportunities: Domestic substitution players: Companies like ChangXin Storage, Yangtze Memory, Northstar Microelectronics, and Jiangsu Changjiang Electronics are expanding production and pursuing domestic substitution, which reduces their reliance on global spot price cycles. They may gain market share during this industry slowdown.
However, it's important to note that a low P/E ratio is not a reason to buy now, as the risk of buying at the bottom in cyclical stocks is high, and many investors could get trapped.
Conclusion
SK Hynix's situation, where performance improved but stock prices fell, is not an isolated event; it signals a shift in the storage industry cycle from a "price increase phase" to a "peak phase." The market's main concern is the sustainability of future growth, not current performance. For individual investors, beware of valuation traps associated with cyclical stocks and avoid being misled by "best-ever performance" or low P/E ratios. For the A-share storage sector, it's crucial to distinguish between different sectors' levels of impact and focus on the long-term potential of domestic substitution.