Stock Markets Slide Again after SK Hynix Profits Disappoint
Asia’s hot AI chip rally has seen one of the fastest reversals in recent times, with South Korean stocks plunging for a second day in a row after a stunning AI-fueled rally turned to a near-record selloff that has decimated small investors, after record profits from memory chipmaker SK Hynix fell short of lofty expectations.
Profits Set Records, So Did Disappointments
SK Hynix’s figures for the period were indeed eye-popping. For the April-June quarter, the firm recorded an operating profit of 60.5 trillion won, compared to 9.2 trillion won in the same period last year, although that was still below the 64 trillion-won forecast by LSEG SmartEstimate. The combination of SK Hynix’s sharply rising profits and nearly 10% stock plunge suggests that investor expectations had exceeded even the impressive figures.
This proved to be more than enough for the shares to slide. As of the close, SK Hynix shares were down 9.6%, having peaked at 20% drop intraday before rallying. Meanwhile, the shares of SK Hynix listed on the U.S. markets were down nearly 6% in early trading.
Market Sell-off Accelerates after Two-days Decline in South Korea
The damage was not limited to SK Hynix, as the benchmark KOSPI index fell as much as 12.6% intraday before recovering some ground to finish the day down 6%, compounding a nearly 11% loss in the previous session to near a record two-day decline. The index has since fallen over 40% from the peak a little more than a month ago.
Samsung Electronics, which together with SK Hynix makes up for over half of the benchmark index value, fell as much as 14% before also recovering some of the losses to finish the day down 5.2%.
Why Things Are Going Sideways So Sharply
A significant part of the explanation lies in how this rally was fueled in the first place. Much of the buying in the recent days was driven by individual investors who used margin financing to buy more shares in hopes of profiting from the rally in the chipmakers, and those same investors are now the ones selling the hardest as brokers force liquidations of their leveraged positions. Volumes were light across the board, pointing to a rapid loss of buyers’ interest in the market that was previously the most popular in the region.
BNY Asia-Pacific macro strategist Wee Khoon Chong noted that Wednesday’s action is in line with heightened leverage levels in Korean equities, with more unwinding to come. Not that it mattered much for the overall gains in the index, with the KOSPI still being up 41.5% in dollar terms year-to-date, making it the best-performing benchmark among major markets.
Authorities are already taking measures to cool down the market. South Korea’s finance ministry said in a statement following an emergency meeting that it would take additional steps to tighten rules on single-stock leveraged products.
What Were the Other Concerns Besides Profit Growth?
The profit figure was not the only reason for disappointment, as analysts pointed to two additional areas of concern, with investors criticizing SK Hynix’s lack of guidance on shareholder returns and projected downside risks to memory chip pricing as the firm moves to adopt more long-term supply agreements. Hyundai Motor Securities research head Greg Roh stated that more clarity on the firm’s shareholder return plans is necessary to reestablish positive momentum. Shipment delays in some high-end memory products accounted for the limited price increases for SK Hynix’s DRAM chips for the quarter.
The Company Views Continued Strong Demand as Reason for Optimism
SK Hynix management was quick to point out that demand for the firm’s memory products remains robust. Song Hyun-jong, president of SK Hynix, noted in the earnings call that significant demand for memory supplies is coming from major clients, with the company working to secure additional long-term supply contracts to meet that demand.
According to SK Hynix representatives, those agreements normally feature a five-year commitment and other terms designed to facilitate contract performance, such as customer deposits, to ensure demand stability throughout the contract period. The company has already secured about 10 such contracts and is discussing additional agreements with other major customers.
The company is also prepared to invest significantly to meet the demand. SK Hynix announced that it expects to raise its capital expenditures to the high-40 trillion-won range in 2026, up from 30.2 trillion won in 2025 in order to meet the heightened demand for memory chips driven by artificial intelligence.
Will Major Tech Firms Continue to Invest Heavily in AI?
The concerns about the prospects for SK Hynix appear to be part of a larger context of questioning whether major technology firms will be able to continue to invest hundreds of billions of dollars in artificial intelligence infrastructure, with the likes of Microsoft, Alphabet, Amazon, Meta Platforms and Oracle all set to accelerate their spending in the coming years in order to meet their needs in specialized chips.
The timing of the concerns about SK Hynix’s prospects could not have been worse, as the market was already trying to process the implications of the upcoming Federal Reserve decision on monetary policy, as well as recent earnings reports from Meta and Microsoft.
The Bottom Line
The situation with SK Hynix encapsulates the dilemma facing many investors who are trying to profit from the artificial intelligence boom, namely that even the strongest figures are viewed by the market as insufficient given even higher expectations. Despite SK Hynix’s stellar figures and record-breaking shares plunge, the stock is still up over 115% for the year, so it remains to be seen whether the correction will be a healthy pause for those who jumped on the rally or the beginning of a much bigger selloff across the technology sector fueled by concerns about artificial intelligence demand.
