Author: SoSoValue Research



SK Hynix released its Q2 2026 results: The increase in DRAM and NAND prices, along with the expanding demand for AI server storage, pushed revenue, operating profit, and profit margins to new historical highs. HBM4 has begun shipping, and high-value products like enterprise SSDs, server DRAM, and SOCAMM2 continue to see increased volumes. The company has also completed long-term supply agreement negotiations with about 10 core customers, improving visibility for mid-to-long-term orders.

However, revenue and operating profit are still below the market's most optimistic expectations. The substantial growth in net profit mainly comes from returns related to investment assets, making it difficult to fully reflect the profitability of the core business. The day before the earnings report was released, SK Hynix's Korean stock fell by 14.65%; after the report was published, the share price rose more than 4%, but turned to decline after the earnings call ended, and as of the time of writing, it had dropped more than 11%, indicating that long-term agreements, HBM4 mass production, and tight supply have not fully alleviated market concerns about performance being below expectations, storage prices peaking, and capital expenditure expansion.

Q2 Results: Revenue and Operating Profit Hit New Highs, but Below Consensus Expectations

Q2 revenue was 79.32 trillion won, a year-on-year increase of 257% and a quarter-on-quarter increase of 51%, but below the market consensus expectation of 84.17 trillion won.

Gross profit reached 65.99 trillion won, a year-on-year increase of 451% and a quarter-on-quarter increase of 58%; gross profit margin rose from 79% in Q1 to 83%.

Operating profit was 60.54 trillion won, a year-on-year increase of 557% and a quarter-on-quarter increase of 61%, but below the market expectation of 64.31 trillion won; the operating profit margin rose from 72% to a record 76%. EBITDA reached 64.56 trillion won, with the EBITDA profit margin rising to 81%.

Net profit increased by 1,242% year-on-year to 93.92 trillion won, with a net profit margin of 118%, but this includes 63.27 trillion won in returns from investment assets. Market analysis believes that this portion of profit is mainly related to the sale of Kioxia-related investment rights. Therefore, when assessing the profitability quality of the core business for this quarter, operating profit, gross profit margin, and operating cash flow are more significant references.

One reason for the performance being below consensus expectations is that SK Hynix has a higher proportion of HBM revenue. HBM generally follows long-term pricing and supply arrangements, and the company's profit elasticity regarding the recent rapid rise in ordinary DRAM and NAND prices is relatively limited. This means that long-term agreements enhance profit stability, but also weaken the company's upside elasticity during phases of rapid increases in spot and short-term contract prices.

Storage Prices Continue to Rise, Q3 Shipments Maintain Growth

The average selling price of storage chips increased by approximately 30% quarter-on-quarter in Q2, with shipments growing in the high single digits quarter-on-quarter. Price increases remain the main driver of revenue and profit margins for this quarter. DRAM accounts for about 73% of product revenue, while NAND accounts for about 27%.

The company expects global DRAM demand to grow approximately in the mid-double digits of 20% year-on-year in 2026, and NAND demand to grow approximately in the high double digits of 10%. The upgrade of AI server architecture is driving simultaneous expansion of HBM, server DRAM, and enterprise-grade SSDs, while the proliferation of Agentic AI is beginning to extend storage demand from model training to inference, data retrieval, and long-term storage.

For Q3, SK Hynix expects DRAM shipments to grow approximately 10% quarter-on-quarter, while NAND shipments will increase in the low single digits. The company did not provide specific quarterly revenue and operating profit guidance; thus, the growth rate for the second half will still depend on DRAM and NAND contract prices, the pace of HBM4 ramp-up, and the revenue share of high-value products.

On the supply side, advanced process transitions, HBM occupying more wafers, and the longer production ramp-up time for new capacity continue to restrict effective supply in the industry. However, current storage prices and profit margins are already at extremely high levels, and the market will closely monitor whether customer pre-purchases are drawing down future demand, as well as the changes in supply-demand relationships after new capacities start to be released from 2027.

HBM4 Enters Ramp-Up Phase, HBM4E Sample Delivery Ahead of Schedule

SK Hynix began shipping HBM4 in Q2 and plans to fully increase production in the second half. The company stated that the products have reached the operational speeds required by customers and are competitive in terms of energy efficiency and cost.

Samples of HBM4E, which uses 1c nanometer technology, have been delivered to major customers in the first half, ahead of the planned sample delivery in the second half. The early sample delivery helps the company enter customer validation and joint development processes earlier and lays the foundation for mass production in 2027.

SOCAMM2 products have also started full supply. This product meets the high-capacity, low-power memory demands of AI servers and CPUs, complementing HBM, which primarily serves GPUs and AI accelerators. As the memory bottleneck for AI servers expands from a single GPU to the entire system, SK Hynix's growth sources are shifting from HBM to server DRAM, SOCAMM2, and enterprise SSDs.

On the NAND side, the 321-layer product became the highest volume product for the company’s NAND output in Q1, and the company plans to increase its share to about 50% of Korea's local NAND capacity by the end of 2026. The transition to advanced processes helps lower unit costs and increase the supply capacity for high-capacity enterprise SSDs.

Long-term Agreements Extended to About 10 Customers, Storage Cycle Begins to Show Structural Changes

SK Hynix has completed long-term supply agreement negotiations with about 10 customers, including core customers, and continues to negotiate with other major customers. The new round of long-term agreements includes pricing structures addressing fluctuations in storage prices, with some contracts introducing prepayment or margin mechanisms to enhance customer performance capabilities and support capacity investment.

The value of the long-term agreements for SK Hynix lies not only in locking in orders but also in increasing visibility for capital expenditure decisions. The storage industry has often expanded production based on short-term prices and inventory cycles, easily leading to supply gluts and price declines. Multi-year contracts, prepayments, and joint development mechanisms can transfer some of the production expansion risks to customers and reduce profit cycle volatility.

The corresponding cost is that when ordinary DRAM and NAND prices rise rapidly, long-term locked products may not fully capture the price gains of the spot market. This quarter's revenue and operating profit are below the most optimistic expectations, reflecting the difference between demand stability and short-term price elasticity.

Capital Expenditure Rises to 40 Trillion Won High, Cash Flow Still Provides Support

SK Hynix expects capital expenditure to reach the high range of 40 trillion won in 2026, focusing on advancing the ramp-up of the Cheongju M15X mass production, advanced process transitions, HBM backend packaging, and the expansion of Yongin Fab 1 starting in early 2027.

Q2 operating cash flow reached 65.71 trillion won, with fixed asset acquisition expenditures amounting to 10.67 trillion won. Roughly calculating operating cash flow minus fixed asset acquisition expenditures, the quarterly free cash flow is approximately 55.04 trillion won.

As of the end of Q2, the company's cash and short-term financial assets reached 87.96 trillion won, an increase of 33.63 trillion won from Q1; interest-bearing debt decreased to 18.59 trillion won, with net cash reaching approximately 69.37 trillion won. The debt-to-equity ratio fell to 7%, and the net debt-to-equity ratio stands at negative 26%.

Strong cash flow means the company currently has the ability to simultaneously advance capacity expansion, reduce debt, and increase shareholder returns. However, as M15X, Yongin, P&T7, and other long-term production bases expand, depreciation and fixed costs will gradually increase. Should AI capital expenditure growth slow, Samsung and Micron expand HBM4 supply, or Chinese memory manufacturers accelerate their expansion in the ordinary DRAM and NAND markets, the current extremely high profit margins will face downward pressure.

Conference Call: AI Demand Not Showing Slowdown, Valuation Focus Shifts to Cycle Duration

Management stated that no significant slowdown in AI investment has been observed from major customers. Large technology companies continue to expand data center construction and storage procurement due to reasons including AI service growth, insufficient existing computing power, and higher demands for server memory and storage capacity from Agentic AI. Improved model efficiency may also reduce AI usage costs and expand application scope, thus increasing overall infrastructure demand.

The core signal from the conference call is that SK Hynix remains confident about order supply tightness for the upcoming quarters. The HBM4 ramp-up in the second half, early sample delivery of HBM4E, about 10 customers signing long-term agreements, and continued growth in Q3 DRAM and NAND shipments collectively indicate that AI demand is still translating into actual storage orders.

This earnings report eases market concerns about a sudden reversal in AI storage demand, but does not fully resolve valuation discrepancies. Revenue and operating profit being below consensus expectations indicate that the market had previously priced in more aggressive price and profit assumptions; the 76% operating profit margin also makes investors more concerned about how long the profit peak can be sustained.

The next phase of SK Hynix's valuation will depend on three variables: whether HBM4 can maintain its technological and market share advantages, whether long-term agreements can translate demand visibility into stable returns, and whether capital expenditure expansion can meet customer demand while avoiding supply glut. Q2 proves that AI storage demand remains strong, while the sharp fluctuations in stock prices indicate that market assessments have shifted from whether profits can grow to how long record profit margins can be maintained.

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