Micron vs. SK Hynix: Which Memory Chip Giant Is the Better Buy?
Key Points
SK Hynix and Micron have benefited from soaring memory chip prices.
One has a closer relationship with Nvidia and a strong position in high-bandwidth memory production.
Investors should also consider valuation.
- 10 stocks we like better than Micron Technology ›
SK Hynix (NASDAQ: SKHY) gave American investors an easy way to buy its stock with its debut on the Nasdaq last month. The Korean company is one of three memory chipmakers whose valuations have soared amid growing demand for memory chips to address one of the biggest bottlenecks in artificial intelligence (AI) right now. One of its biggest rivals, Micron Technology (NASDAQ: MU), has produced tremendous earnings growth as well, as pricing for its chips climbs month after month.
Micron has long been the easiest way for American investors to buy into the memory chip shortage. But with SK Hynix's debut last month, they now have another option. Which stock should you choose?
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A discount and an important relationship
Due to the cyclical nature of memory chip stocks, both Micron and SK Hynix trade for very low price-to-earnings ratios. Micron trades for about 5.7 times expected earnings for fiscal 2027 ending next August. SK Hynix, however, trades for even less, just 5 times forward earnings estimates.
That discrepancy exists despite the two companies sharing similar revenue growth and operating margin potential. In fact, one could argue SK Hynix is better positioned than Micron over the next few quarters, given its lead in high-bandwidth memory (HBM) chip production and close relationship with Nvidia (NASDAQ: NVDA).
Nvidia announced an agreement with SK Hynix to secure supply of HBM chips for multiple years. The contract could be worth $500 billion, according to reports. SK Hynix management noted that despite slower-than-anticipated HBM4 sales in the second quarter, it expects a ramp-up in the back half of the year to bolster sales and average selling price for its chips. Its close relationship with Nvidia could be what gives it that confidence.
At the same time, locking in pricing with Nvidia through a long-term agreement could cap the peak of SK Hynix's earnings cycle. It's the trade-off both chipmakers have been making in recent quarters: less upside today in exchange for more predictability and less downside in the future. Micron has also struck several long-term agreements, representing about 20% of DRAM chip revenue and one-third of NAND chip revenue.
Still, analysts currently price SK Hynix at a significantly lower multiple of peak earnings than Micron. Analysts expect both to peak in 2028, but Micron shares trade at close to 5.5 times fiscal 2028 earnings, while SK Hynix trades at just 3.5 times 2028 earnings. Combined with SK Hynix's current position with Nvidia, that makes the Korean company a better way to invest in the memory supercycle right now.
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Adam Levy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology and Nvidia. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.
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