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

      High-bandwidth memory is an unnoticed component of an AI system, positioned next to the processor to supply it with data. If its speed is inadequate, the costly chip is left waiting. This memory is created by stacking standard DRAM, the same type used in laptops and phones, which explains why the expansion of AI consumes a substantial portion of consumer memory, as these stacks require it. According to figures from Counterpoint Research cited by CNBC, SK Hynix commands 58% of the HBM market as of the first quarter, while Samsung and Micron each hold 21%. SK Hynix has announced plans to invest $720 billion to create what it refers to as the world's largest network of memory factories.

      The significant aspect is that SK Hynix is constructing a fab in the Yongin Cluster, which CNBC was the first to film. The factory is set to begin production in February. This facility is notable for its vertical design, due to the limitations of the terrain in Korea, with a height comparable to a 50-storey building and featuring six cleanrooms across multiple floors. In contrast, TSMC and Intel are developing sprawling single-storey plants in Arizona. This engineering choice is dictated by geographic conditions, leading to a greater concrete requirement per wafer.

      SK Hynix is also expanding its Cheongju site with the addition of a NAND factory. However, the market appears to believe that the peak may have already been reached. As reported by Bloomberg, SK Hynix and Samsung shares have dropped approximately 50% and 34% respectively from their high points in June, despite both companies reporting record profits during this period.

      The same story is reflected in the US market, where SK Hynix's shares, listed on the Nasdaq, have fallen about 21% from their high of nearly $195 on July 14. Memory stocks do not necessarily weaken when prices decline; rather, a slowdown in the rate of price increase is sufficient, and this is currently occurring. TrendForce projects conventional DRAM contract prices to rise by 58% to 63% in the second quarter and only 13% to 18% for server DRAM in the third.

      In response, the companies are focusing on cash management. SK Hynix has announced plans for shareholder returns in the third quarter, with Samsung expected to follow suit. The justification for continued investment during a downturn relies on long-term contracts. In July, SK Hynix reported securing 10 long-term supply agreements, a structure that was nearly nonexistent when memory was treated purely as a commodity. Samsung aims for multi-year agreements to eventually cover 60% to 70% of its intended capacity, while Micron had 16 such agreements by the end of June.

      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, which will also include new data centers with SK Telecom by 2027. SK Group chairman Chey Tae-won stated that the nature of the product has evolved, adding that corporations like Nvidia and Google are seeking custom chips and HBM, indicating it is no longer just a commodity. Chey shared that Nvidia's CEO, Jensen Huang, wrote a note on a wafer asking for increased production, emphasizing the high demand. Chey described the competitive landscape as intense, noting that the demand for memory chips is critical for AI computing and chip production.

      Meanwhile, SK Hynix is considering selling its packaging plant in Chongqing, as reported by the South China Morning Post. The company indicated it is exploring various options to enhance its packaging business's competitiveness, which analysts interpret as a shift towards higher-margin AI memory, though concerns about valuation and market cycles complicate a potential sale. Politically, SK Hynix operates three fabs in China but cannot sell leading-edge HBM due to US export regulations. In response, China is developing its own capabilities; for example, CXMT made a notable debut in Shanghai, garnering a valuation surpassing that of all other Chinese-listed companies. Hwang characterized China as a significant competitor, presenting risks to the industry.

      This situation is not solely driven by market forces. In June, President Lee Jae Myung unveiled a plan to double South Korea’s memory production within five years, supported by a government investment package of at least $22 billion. Samsung is also expanding with plans for its own Yongin fab at the same site. Together, these two companies form the backbone of the Korean memory market, which derives approximately half of its value from them. Meanwhile, American companies are investing too, with Micron planning to spend $50 billion on two fabs in Idaho and up to $100 billion on a New York campus.

      However, SK Hynix's Indiana plant is less substantial than it appears, with the $4 billion facility focused on packaging rather than front-end manufacturing. Chey has reportedly spent over a month assessing potential locations for