SK Hynix (SKHY.US) spent 38 billion US dollars to build two new fabs, and AI storage capacity expansion gradually came to fruition

The Zhitong Finance App learned that SK Hynix (SKHY.US), the world's second-largest memory chip manufacturer, announced on Friday that the board of directors has decided to pass a major investment plan totaling about 54 trillion won (about 38 billion US dollars) to build two new fabs in Yongin and Cheongju, South Korea to meet the growing demand for memory in the AI era. This is the most substantial step taken by SK Hynix in expanding production capacity after the South Korean government announced the “Big Three Super Projects” national strategy in June. It indicates that this HBM leader is expanding production capacity at an unprecedented rate.

Meanwhile, the company announced a dividend of 375 won per share and revealed that it is “actively studying” additional shareholder return measures. The details are scheduled to be finalized and announced in the third quarter. This rare “production expansion+feedback” combo sends a double signal to the market at a time when the memory chip industry cycle is causing widespread controversy.

Investment panorama: DRAM and NAND go hand in hand, and the construction period is greatly advanced

Yongin Y2 is the second of the four fabs planned by SK Hynix within the Yongin semiconductor cluster, with a total construction area of about 341,000 square meters (about 1.13 million square meters). The project is scheduled to start construction in July next year, and the first clean room will be opened in June 2029, mainly to produce next-generation DRAM products such as HBM. Currently, construction of Y1, the first fab in Yongin, is progressing smoothly, and it is expected that the first dust-free room will be opened in February next year.

Cheongju M17 is positioned as a NAND flash memory production base, with a total construction area of about 206,000 pyeong (about 680,000 square meters). SK Hynix chose to build a new plant in Cheongju because the park has already built three NAND production facilities, M11, M12, and M15. The new fab can be built in synergy with the existing production line, and infrastructure such as the plant site, electricity, and water are basically in place. The M17 is scheduled to start construction in February next year, and the first clean room will be opened in December 2028.

What is more noteworthy is that the construction period was greatly advanced. SK Hynix has drastically brought forward the overall completion time of the Yongin semiconductor cluster from 2045 to 2033, shortening it by 12 years. This Y2 construction is a key second-phase initiative to support this goal, and the investment will be implemented in stages until October 2031.

Strategic logic: paradigm shift from “components” to “AI core infrastructure”

Behind SK Hynix's aggressive production expansion is a fundamental reassessment of the attributes of the memory chip industry. The company clearly stated that this “is not a momentary industry boom,” but rather because memory has been upgraded from ordinary components to core infrastructure that determines AI performance, and has entered a stage of structural growth.

This judgment has been initially verified by the market. According to industry sources, Samsung Electronics, Micron, and SK Hynix's DRAM and HBM production capacity has been fully distributed throughout 2027, covering major long-term agreement customers and small and medium-sized buyers. According to supply chain information compiled by multiple media outlets, most customers only get 60% to 70% of the initial request for final delivery.

According to market research firm Omdia, demand in the DRAM and NAND flash memory market will grow at an average annual rate of 19% from 2025 to 2030. SK Hynix stressed in a statement that this “is not a momentary industry boom, but rather because memories have been upgraded from ordinary components to core infrastructure that determines AI performance, and has entered a stage of structural growth.”

The company explained its core strategic logic in an official statement: “In the AI era, technological competitiveness alone is not enough to maintain an advantage; being able to deliver sufficient products at the time required by customers is true competitiveness. The investment decision was based on a thorough assessment of market demand.”

Looking at the demand structure, demand for NAND flash memory is growing rapidly, with enterprise solid state drives (eSSD) as the core. At the same time, the demand for KV caches in the AI inference process has further increased, superimposed agent (agentic) and physical (physical) AI applications are gradually being implemented, and the application scenarios of NAND flash memory are expected to expand further.

SK Hynix said, “This investment will not only consolidate the foundation for future growth, but will also enhance the ecological competitiveness of the Korean semiconductor industry and drive regional economic development. Large-scale investment in Yongin and Cheongju is expected to create more opportunities for collaborative growth for partner companies.”

At the same time, the company emphasized that it will “communicate with customers in the medium to long term, lay out production infrastructure in a forward-looking manner, and expand production capacity in stages according to actual customer needs.”

This investment is also part of South Korea's national strategy. SK Hynix previously announced an investment of 600 trillion won in the Yongin semiconductor cluster and 100 trillion won in the Cheongju production site. The overall completion time for the Yongin Cluster has been brought forward significantly from 2045 to 2033. Currently, 99% of the construction of the first phase of electricity and water supply infrastructure to support the commissioning of Y2 has been completed.

Shareholder return: 375 won dividend per share+additional measures announced in Q3

While aggressively expanding production, SK Hynix unexpectedly simultaneously released shareholder feedback signals. The company announced a cash dividend of 375 won per share. What is more noteworthy is that SK Hynix stated in regulatory documents that it is “actively considering” additional shareholder return measures to enhance shareholder value, and that details are expected to be finalized and announced in the third quarter. This is earlier than the announcement of shareholder return plans at the beginning of the year.

This “production expansion+feedback” combo not only conveys the company's confidence in future cash flow to the market in the context of widespread controversy in the current memory chip industry cycle, but also responds to investors' concerns that huge capital expenses may erode shareholder value.

Stock price pressure and the divergence of long-term narratives

Despite the large scale of the investment plan, the market's reaction on the day was not enthusiastic. On August 7, Korea's KOSPI index closed down 0.60% to 6258.71 points, falling for the seventh week in a row, setting the record for the longest continuous decline since December 2022. SK Hynix closed down nearly 5% on the same day, with a decline of more than 35% in the past month.

This market performance reflects the core contradiction in the current memory chip industry: a sharp tension between long-term demand narratives and short-term cycle concerns.

The core logic of the bulls is that LTAs (long-term supply agreements) are fundamentally changing the cyclical nature of the storage industry. SK Hynix has completed LTA negotiations with about 10 customers. Long-term cooperation accounts for about 50% to 60%, and the majority period is five years. These agreements include pricing terms and customer upfront payments, providing significant downside protection for profits. Omdia predicts that demand for DRAM and NAND will grow at an average annual rate of 19% by 2030, while SK Hynix's production capacity is scheduled to reach 2027.

The concerns of the bears focus on: record profit margins often herald the peak of the cycle. The huge capital expenditure of 54 trillion won will further increase industry supply, and once the growth rate of AI demand slows down or large-scale customers cut capital expenses, the price of memory chips may face a sharp correction. SK Hynix's current forward price-earnings ratio of about 6 times may seem “cheap,” but if the cycle is reversed, the sharp decline in profit will quickly drive up the valuation.