SK Hynix, the South Korean memory chip giant, reported impressive earnings that sent its New York-listed shares soaring over 13% on Wednesday. This surge, driven by better-than-expected results and a positive outlook, highlighted the potential for artificial intelligence (AI) stocks to rally, despite market skepticism about the extensive investment in data centers.
The earnings report had a ripple effect across the semiconductor industry. Micron saw its shares climb nearly 6%, while Arm and AMD experienced gains of 4% and 3%, respectively. These movements were notable in a market where even robust earnings have struggled to boost AI-related stocks, as investors remain uncertain about the returns on massive data center expenditures.
Jim Cramer, host of CNBC's Mad Money, remarked on SK Hynix's strategic approach to overcoming Wall Street's doubts. He pointed out that the company's low valuation—trading at just four times its projected 2027 earnings—left room for a significant stock rally if the company exceeded expectations. SK Hynix did just that, with revenue surpassing estimates by approximately 6% and gross margins reaching 85.7%.
Furthermore, the company projected shipment growth in the mid-20% range for the current quarter, a substantial increase from the 10% growth in the previous quarter. Cramer noted that such accelerating growth is highly attractive to growth investors, as it fuels optimism about future prospects.
One of the most compelling aspects of SK Hynix's report was its indication of strong demand for memory chips used in AI data centers, supported by long-term customer agreements. Cramer emphasized the company's plans to invest heavily in additional manufacturing equipment, a move that typically raises concerns about oversupply and declining memory prices. However, he argued that the current demand is so strong that increased supply will not saturate the market, reflecting an extraordinary level of confidence.
In addition to its operational success, SK Hynix announced substantial shareholder returns through dividends and stock buybacks, providing further incentive for investor optimism. Cramer suggested that the combination of a low valuation, strong earnings, accelerating growth, sustained demand, and shareholder returns offers a blueprint for AI-related companies to win over investors in a challenging market environment.
Cramer also highlighted the positive implications for Micron, a holding in his Charitable Trust portfolio. He noted that Micron shares a low trading multiple and similar long-term customer agreements with SK Hynix. Additionally, there is potential for Micron to utilize its growing cash reserves for a significant buyback once CHIPS Act funding restrictions are lifted.
