SK Hynix IPO Analysis: Full Breakdown & Transcript

[00:00] Boy, oh boy, it's time to talk about yet another IPO that could potentially double at Open. And after that, we got to talk about that. But let's make sure we know.

[00:15] Well, right now, we're going to talk about the big IPO that's coming on Friday. We need to look at some of our last calls. One of the latest calls that we made on IPOs was Cerebrus. In fact, I made a video called Warning the Cerebrus IPO, and one of the things I said in it was the following.

[00:34] Income is going to disappear over time. This, to me, quietly looks like a little bit of a pump and dump. Ooh, I was a little bearish on the stock, let's just say.

[00:48] And not only was I a little bearish on the stock, but I think we were rightfully bearish. The puppy opened up with a high of $386. It now sits at $198.

[01:01] You can see that full analysis we did last time. That's down about half. And today we're going to do an analysis on the next juicy IPO. But that, of course, only after mentioning what we said for SpaceX.

[01:15] SpaceX, we said, hey, if you could buy it at $135, you'd get an allocation. Fine. Buy it. If you had it before that, fine. Venture capital company that I run also has SpaceX allocation before that. So we're investing in it, still locked up in it.

[01:28] Okay. We made it clear that, hey, if you have it before, you're probably okay. But otherwise, the float is so freaking low, expect it to pop and then bleed out. And my, oh my, look at that pop and bleed out.

[01:42] Anyway, point is, IPOs are really interesting because they're big old money grabs. And generally, the IPO is purposely designed to have a very low flow to pump them up.

[01:55] And that's what brings us to the very next big player in the space who's IPO-ing this week. And it is SK Hynix.

[02:07] Now, SK Hynix is already public in the Korean stock market, but it is not available for investments in the United States. So a lot of people are really excited that SK Hynix is going to go public.

[02:19] More full-stack AI memory, baby! Yeah, just what we need. More memory! Because, after all, Micron has absolutely been killing it.

[02:31] Sandisk, which was a spin-off from Western Digital, has absolutely been killing it. But the last couple weeks have started to make people scratch their heads. The timing is maybe unsurprising.

[02:43] Shortly after the SpaceX vacuum cleaner started sucking up a lot of money, we started to see some peaks in the memory sector, which maybe that's temporary, but Micron is down 25% from its peak,

[02:57] and SanDisk is also down about 24% from its peak, probably because they realize we're about to have an IPO, SK Hynix, that will represent about one-third of the size of SpaceX.

[03:10] So, you might think, oh, it's just another little IPO. No, it's pretty frickin' big. One-third of the size of SpaceX, which now has taken the trophy for the largest IPO ever, is huge.

[03:23] They're expected to raise over $29 billion, and a lot of people want to know, Kevin, is this the memory stock to finally get into? The valuation is actually kind of cheap.

[03:35] Well, let's find out. First things first, Micron also shows us that its valuation isn't really that rich if you value it like other companies. See, usually the way we like to value companies is we look at what their earnings are for the end of this year.

[03:50] They don't care about the trailing earnings or the earnings of the past. What do we think earnings are going to be at the end of this year? And then, from that point on, what do we think the growth of the company is? And then we can figure out, well, how reasonable is that compared to other companies?

[04:03] For example, Palantir, I think, is about half as expensive as SpaceX, which means to me a company like Palantir or some of these software stocks are twice as juicy as a company like SpaceX.

[04:18] And then, of course, there are other companies that are even more juicy. But the point of this video is to focus on memory. And Micron actually looks relatively cheap compared to this whole bundle. Well, Micron potentially looks, or actually does, looks cheaper than Palantir.

[04:36] Now, why is that? It's a memory play. Why would it be trading for lower than a company like Palantir? Why is potentially a company like SanDisk trading lower, if it is? We'll do the numbers on SK Hynix in just a moment.

[04:52] Micron's trading lower because markets are starting to price in that growth probably won't be stable for those four years thereafter. If you assume current analyst expectations are correct for Micron,

[05:07] then the next four years of growth for Micron will be fantastic, and you really don't have to worry about the valuation because it's cheap. But you know what assuming does. Assuming makes up...

[05:19] All right, you know the joke. We don't have to get into it. But Micron's valuation right now sits at about 0.9 peg, which is really cheap. It suggests it has like a 2.5x built into its valuation.

[05:32] But that assumes growth rates don't go negative. And SK Hynix is about to show us a problem. Before I show you the SK Hynix problem, though, you need to know this chart. Bloomberg Intelligence has recently released this chart,

[05:46] indicating that the memory shortage may be oversupplied, where we are over in percentage of the sufficiency ratio to keep manufacturing at 100 capacity right The whole point of memory Hold on Let we just back up for a moment because those were a lot of big words Companies that make

[06:04] chips employ a lot of really skilled workers. You know, when you see the pictures of the chip factories, they're all wearing their PPE, you know, not to be confused with PPP loans. I'm talking about like those white suits and masks and everything. Okay, these

[06:18] People have skill. They're not just, you know, button pushers in a factory. They are in a factory, but they're skilled button pushers. You want to keep those people employed, because you don't want to spend the money to keep retraining these people.

[06:31] This is true, really, for all chip companies, manufacturing companies. Unlike NVIDIA, which just designs the chips, which is crazy to think about. But anyway, the problem with this is,

[06:43] if you don't have enough orders to keep them busy, you send them home, and then they go get another job. So you try to keep your factory at 100% utilization. A sufficiency ratio of zero in this case would basically be the equivalent of 100% utilization.

[06:59] As you can see right now, we are below sufficiency, which means we are really busy at the factory lines, and we're not supplying the market enough for its needs, right? Ideally, you want supply to meet demand, right?

[07:11] If you have 100% capacity, so 100% supply, 100% demand, perfect. Everybody's happy. You've got equilibrium. If you have too much demand, therefore too little sufficiency, too little supply, prices skyrocket.

[07:26] And that's what's happening right now. Prices have skyrocketed. And when I say skyrocketed, I mean insane. Like 3 to 4x thing is what we're doing on some of these revenue or these number increases.

[07:40] In fact, if you look at the last micron earnings, you will say this company has the craziest pricing power in the world. Look at this. Sales of DRAM products increased 67%, mostly because prices went up in the low 60s.

[07:57] So, in other words, we only shipped a few more percent of DRAM products quarter over quarter, low to mid-single digits for DRAM and NAND. But we raised prices on DRAM 67%, and we raised prices, or low 60%, and we raised prices on NAND products about 85-ish percent.

[08:16] That's quarter over quarter. So in one quarter, from Q1 to Q2, they raised prices by about, you know, 60% to 80%. Year over year, they raised prices 3 to 4x.

[08:30] These are insane price increases right here. and they represent that lack of supply right now. Problem is, Bloomberg is already giving us a heads up that that's probably not going to last.

[08:43] Well, we already knew that. Why did we already know that? We already knew that because these companies are coming out with a lot of extra building. That is a little bit of a problem.

[08:56] In fact, yesterday we made a pretty large video on some of the build-out that's happening with Micron. And this had to do with an inflation versus deflation argument

[09:08] we were making, Cathy Wood versus T.S. Lombard. And inside of it, we actually mentioned that Micron is probably expected to increase their supply by about 50% to 100%, so somewhere between half to double.

[09:22] That's because they're essentially building out all of these new fabs that are expected to complete production mid-27 in Idaho, 27 in Singapore, end of 28 in Idaho,

[09:35] the second half of 28 Singapore, 2028 Taiwan, 2030 for the first of four in New York. And that's my draw. SK Hynix, you might think, well, maybe they're different.

[09:48] Maybe they're not going to build as much supply. Maybe they will keep supply constrained and stay busy. No. SK Hynix is no different.

[10:00] They also are expecting to double capacity in the next five years. In fact, management in this case literally tells us they expect to double their manufacturing capacity in the next five years.

[10:14] They're doing that with a Korea facility that's expected to complete in 2033. So that one's got some time to go. They're starting that one next year. I haven't started that one yet. They are expecting one of their extensions to complete, well, have just completed,

[10:29] the M15X extension just completed in Q126. Advanced manufacturing, or packaging, rather, is coming at the end of 2027. NAND Flash Fab is coming in the first half of 29.

[10:42] An Indiana advanced packaging plant is coming in the first half of 28. And then another southwestern region complex is coming soon, TBD. So, again, expecting to double capacity in the next five years.

[10:55] Why does this matter? We're supposed to be talking about the stock going up, and we're talking about surprise, a memory chip manufacturing going up. What do we do? We get it. What the hell? Get it straight. Well, every single time you look at a memory company's risk factors,

[11:12] with almost without a doubt, you will find that the number one risk factor that they list in the summary of C-Value Co-op, but summary of risk factors. The summary of risk factors, I can't get it right now,

[11:24] but I'll find it. The number one risk factor that they tend to give you is, hey, memory, there it is, I got it, is really cyclical. And it's almost always the first one they give you.

[11:38] The memory semiconductor industry is subject to cyclical fluctuations. In 2023, Micron lost billions of dollars because they were selling memory chips for less than the cost it takes to make them Why would you do that Because you don want to lose those light employees So you going to keep the factory lines going and you going to make the memory chips even

[12:02] though you're losing money on every single one of them you're printing. Seems crazy, right? Do we think that SK Hynix was any different? That's the important question. Was SK Hynix any different?

[12:15] No. They also went negative on their cost of sales in 2023. Here's their income statement. which shows you that they spent 33 trillion yuan making 32 trillion dollars worth of revenue.

[12:32] That's right here for you. So it shows you the cyclicality of the memory business. And probably the biggest issue with SK Hynix is that not only are their margins worse than Micron's,

[12:45] their margins, they have about a 60% gross margin, which is pretty good. You know, don't get me wrong. making 60% on every $100 gross profit. That's pretty good. You're sitting at like, you know, Apple and Microsoft gross profit levels.

[12:59] Not quite at the NVIDIA levels, but those are good. Not net profits, gross profits. Micron, though, they've got nice margins. Micron's last margins were 84.5%,

[13:12] which means this company has, Micron has 24.5 percentage points on top of the SK Hynix margins. So, Micron's actually doing better than SK Hynix in terms of margins. Pretty impressive.

[13:28] Now, forecast-wise, and this is the big problem, forecast-wise, markets for SK Hynix, unlike Micron, are already indicating basically flat growth for the next four years.

[13:42] So even though this is an AER, which is an American Depository Receipt, which is just really a fancy way of saying it's a foreign listing, things get a little complicated here because the projected ECS for the end of the year is technically $207,

[13:59] but an AER is only worth one-tenth of the SK Hynix shares in Korea, so you have to divide earnings by ten. they're projected to by the end of the year have $20.75 of earnings

[14:12] current Wall Street estimates which means that they end up IPOing at about $166 per share it means they're only trading for about 8 times the rate somewhere between 6 to 8 times earnings is probably where they'll go out

[14:26] but the growth rate that Wall Street is already pricing in for them is basically flat we're looking at 46.1% growth next year 7.7% the year after that, minus 30.3% the year after that, and minus 21.9% after that.

[14:43] That leaves me with, over the next four years, 1.6% growth. So, if I'm at 1.6% growth, and I'm at an 8 PEG, or I'm at an 8 PE ratio,

[14:57] if I take 8 and divide it by 1%, I'm basically at an 8 PEG, which is extremely expensive. Now, does that mean the stock is going to go down? Because SpaceX was extremely expensive, too.

[15:10] No. Because the stock is only going to have about 2.5% of its outstanding shares floating on the market for sale. Which is really small.

[15:24] SpaceX was about 4.1%. Space, F.J. Hynek's, though, does have the main corporate company that's going to hold about 25% goes to the main company of that 2.5%,

[15:37] which, if I take 2.5 and divide it by .795, that means this is effectively a 3.14% float. It's a pie float.

[15:51] Math joke. Sorry, so stupid. Anyway, so about 3.4%, so they will have a lower float than SpaceX. Which means, remember what happened with SpaceX? Of course we remember what happened with SpaceX!

[16:05] They pumped, because they only had 1.1% outstanding, it's very low, and people wanted! Now, this isn't SpaceX, this is a memory company, so in fairness, it's going to trade likely in alignment with Mike Arn and Sandisk.

[16:21] A lot of money that's pumped into Micron and Sandisk, though. Some of that, people are going to want to allocate some money to SK Hynix, so they'll probably sell some Micron and SK Hynix. And that's probably why the stocks are down 25%,

[16:33] because the momentum has slowed and the traders exit. So momentum slows, traders exit, as people try to diversify, and what happens? You know, the momentum movement rolls over. Or markets are finally realizing,

[16:45] ah, crap, we're probably not going to grow these companies as much because we're massively expanding capacity, and demand does not go to infinity.

[16:57] Everybody should know that after Elon Musk said, I mean, usually when a company says demand is infinite, or an industry says demand is infinite, it's a top signal. Elon Musk told us at the top of Tesla pricing in 2021,

[17:09] Tesla stock price peak, he told us demand is basically infinite for Tesla. Which turned out to be exactly wrong. And now we're hearing that the memory company, specifically, well, Sandisk.

[17:25] Sorry, let me get this right. SK Hynix does not see demand peaking until 2033, they say, and Micron says they do not believe supply will ever intersect with demand.

[17:38] In other words, even though they're increasing capacity massively, they don't think there'll be an intersection point where supply finally needs demand, which is kind of a way of saying, oh, there's more demand than we could ever possibly produce.

[17:52] It not as wild as saying demand is infinite for memory but it probably as close as we going to get because I got to give these people credit These Korean folks are a little bit more conservative

[18:06] than the Elon Musk. All right, anyway. So they're expecting to raise $28 billion. They'll probably have a green shoe. They'll probably expand that a little bit as well.

[18:18] The company is obviously blowing money on their factory expansion. So they do have free cash flow of $26 trillion, which works out to about $17 billion.

[18:30] That's pretty good. So their cash flow in 2025 was, you know, about two-thirds of what they're about to raise in the IPO. So they're going to make some sweet money on this IPO. They're really going to get some liquidity flowing.

[18:42] Especially since they have actually been, last year they were actually net borrowing to pay their dividends. Not by much, but they were net borrowing. They did pay off debt in 2024, which was pretty good,

[18:57] although they basically just paid off what they picked up in 2023, because in 2023 they were net cash flow negative. They lost $4 trillion. So still borrowing here.

[19:09] It'd be nice to see them pay off a little bit more, though their balance sheet isn't actually that bad. They've got about 34 short, 18 unreceivable. Their short-term debt is about 37.3 and 18 long.

[19:21] So that basically puts them out flat on their balance sheet. So they're doing a good job. The balance sheet is pretty stable. They're actually going to shore it up even more, this IPO. Their margins are fine. Their growth being flat is the biggest risk factor here.

[19:35] You've got a jury waiver included in the ADRs, which is an interesting thing. You're starting to see more and more. Elon tried to shove that into the SpaceX IPO as well. We'll see if that holds. Of course, the cyclical warning is number one.

[19:48] We already know that. And as far as the company itself, they do have decent market share. In DRAM, which includes high bandwidth memory, they are ranked second based on revenue with a market share of 29.1%.

[20:01] And in the high bandwidth market specifically, they are ranked first globally. Oh, that goes into our fancy media check. With a market share of 56.4% in the first quarter of 2026.

[20:14] And they're the second largest supplier of NAND slash memory based on revenue with a market share of 18.5%. So not bad. So, bottom line, what do we think about this company? Well, it's yet another memory liquidity suck in the pie.

[20:30] And everything, in my opinion right now, is going to come down to the market's ability to find new leadership. That's why the NASDAQ is off the ties right now, because we've got that massive liquidity drain of SpaceX that took so much money out of the market's ability to keep momentum going.

[20:47] We need new leadership. Now, maybe, maybe that'll be memory, but memory so far on the day chart for Sandisk is rolling over, for Micron is rolling over, and SK Hynix is just more of, hey, let's spread the wealth,

[21:02] which is and implies even more of a rollover. Not ideal. Now, obviously, there's a little bit of a push today because NVIDIA had some bad news over the weekend that, hey, we're going to delay one of our server racks potentially by as much as of a year.

[21:18] That is a big boon to AMD, and that is why AMD is up 9%, which we did talk about this morning in the course number livestream at Nausea. That's why if you're not part of the Meet Kevin membership yet, I think you're missing out by not being part of those live streams every single morning.

[21:31] That said, that's my take on SK Hynix. Bottom line for SK Hynix, the valuation is very high because Wall Street has already priced in flat growth.

[21:43] Micron is probably, you know, looking like it has a low or cheap valuation because Wall Street has not yet priced in that rollover of growth. But, those are the Wall Street analyst expectations.

[21:57] The market probably is. The market is saying, yeah, but we don't want to pay a higher peg ratio for Micron because it's probably going to roll over just like SK Hynix. So, actual projections for the stock.

[22:09] The stock will, obviously, they'll say, oh, wow, SK Hynix up a double on the first day or whatever. That's always what they do. You know, they'll price it at $79 and it'll IPO at $150, $160 or whatever. Okay, cool. It'll sit right there with SpaceX.

[22:22] What happens after that? It has mean potential. The mean potential, if it goes, it will take Micron up and SanDisk up with it. The problem is, once that initial momentum fades, they're probably all going down.

[22:38] will another portion of the market pick up leadership? That's the hope. So the indices can keep going up. We'll see. Because even though SpaceX joins the NASDAQ 100 tomorrow,

[22:52] only less than 1% of market capital will be part of it. Well, if SpaceX will represent less than 1% of the NASDAQ 100, we got lots of liquidity sucks coming up,

[23:04] including lock-up expiration. The same will be true of SK Hynix future. So, buckle up. This one, I would not buy post IPO unless I was quickly trying to mean trade flip in and out, but I wouldn't hold it at these levels, especially with the

[23:20] growth projections, and personally, I think we're going to massively oversupply memory in the long term, making very bearish on these stocks in the next 10 years. Trade opportunity, short term, fine. Long term, not with a 10-foot pole. That's my take. Thanks for watching.

[23:36] See you in the next one. Goodbye and goodbye. I know how advertising is. These things that you told us here, I feel like nobody else knows about this. Well, Silo Advertising and Fiat Goats, congratulations, man. You have done so much. People love you. People look up to you.

[23:48] Kevin's talk left there. Find that glamorous. And you three, let's meet Kevin. Always great to get your take.