SK Hynix is investing $720 billion as its stock price decreases by 50%.

      High-bandwidth memory is a component of an AI system that typically goes unseen. Positioned alongside the processor, it supplies data, and if it operates too slowly, the pricey chip is left waiting. It consists of stacked conventional DRAM, the same type of memory used in laptops and smartphones. This is the reason an AI expansion affects the availability of consumer memory: these stacks consume it. Currently, three companies dominate this market. According to Counterpoint Research data referenced by CNBC, SK Hynix accounted for 58% of the HBM market in the first quarter, while Samsung and Micron each held 21%.

      SK Hynix has announced plans to invest $720 billion to create what it describes as the largest memory factory network globally.

      A factory the height of a 50-storey building

      CNBC was the first media outlet permitted to film inside the Yongin Cluster, where the initial of four planned factories is under construction, with production set to commence in February. The structure is significant. Korean factories are designed to go vertical due to geographic limitations. This one will reach the height of a 50-storey apartment building and will feature six cleanrooms spread over multiple floors. In contrast, TSMC and Intel are constructing sprawling single-storey facilities in Arizona. This engineering approach adapts to the landscape and results in a much higher concrete usage per wafer.

      SK Hynix is also expanding at its Cheongju site, where it is establishing a NAND factory.

      The market believes the peak has already passed

      This is a detail not covered in CNBC’s tour. Investors have spent the past two months concluding that this boom has ended. According to Bloomberg, SK Hynix and Samsung shares have dropped approximately 50% and 34% respectively since their June highs, even though both companies recorded exceptional earnings during that time.

      The US market offers a similar narrative over a shorter time span. SK Hynix, which went public on the Nasdaq in July, has seen its shares decrease by about 21% from a peak of nearly $195 on July 14. Memory stocks don’t need prices to decline to weaken; they simply require a slowing growth rate, which is now occurring. TrendForce anticipates that conventional DRAM contract prices will rise by 58% to 63% in the second quarter, but will only increase by 13% to 18% for server DRAM in the third quarter.

      In response, SK Hynix has announced a timeline for shareholder returns in the third quarter, with Samsung likely to follow suit.

      Reasons for continued investment

      The rationale behind investing amid a downturn hinges on long-term contracts. SK Hynix announced 10 long-term supply agreements in July, a framework that was minimal when memory was generally viewed as a commodity. Samsung expects long-term contracts to eventually cover 60% to 70% of its anticipated capacity. At the end of June, Micron had established 16 similar agreements.

      Nvidia has taken significant steps by securing HBM supply and committing to co-develop next-generation memory in a $500 billion partnership with SK Group that also includes new data centers in collaboration with SK Telecom by 2027. SK Group chairman Chey Tae-won argues that the nature of the product itself has evolved, stating, “Nvidia wants their own custom chips and Google wants their own customized HBM, so it’s not just a commodity,” during an interview with CNBC. “This actually alters the memory chip’s status.”

      “Please produce more”

      Chey presented CNBC with a wafer that had a handwritten note from Nvidia CEO Jensen Huang. It said, “Please make more.” “Demand is like a war,” Chey described. “Everyone wants to purchase the memory chips. Without them, they cannot manufacture their AI computing and AI chips.” He also acknowledged that prices “rose too quickly” and noted he is working to rectify this.

      The demand is apparent. Counterpoint research director MS Hwang stated that every hotel near the Korean memory factories is fully booked. “If you mention any major company in Big Tech, they are all in Korea to finalize contracts,” he noted.

      Quietly attempting to sell a Chinese facility

      However, there is a countervailing narrative to the expansion story. As reported by the South China Morning Post, SK Hynix is considering selling its packaging plant in Chongqing. The company announced on Monday that it is “exploring various solutions to enhance the competitiveness of its packaging business.” Analysts interpret this as a shift toward higher-margin AI memory, although they caution that valuation and the chip cycle complicate a potential sale.

      The political landscape is more straightforward. SK Hynix operates three factories in China but is prohibited from selling cutting-edge HBM there due to US export restrictions.

      China is developing its own capabilities. CXMT recently debuted in Shanghai with a valuation exceeding that of any other Chinese-listed company. Hwang has referred to China as