Is SK Hynix Stock a Buy on the Dip as Demand Continues to Surge?

South Korean memory maker SK Hynix (NASDAQ: SKHY) reported its first earnings after debuting its ADRs (American depositary receipts) on the Nasdaq Exchange, and as expected, the company saw robust growth. However, its revenue and earnings missed expectations, as some high bandwidth memory (HBM) shipments weren't delivered in time this quarter.

SK Hynix's stock has been extremely volatile since its U.S. debut earlier in July, as memory stocks have been whipsawed between the prospects of huge sustained growth and the fear of past memory cycles that have seen prices collapse and investors left in tears. Let's dip into the company's earnings report to see if the stock is a buy.

Huge growth, as demand remains strong

In Q2, SK Hynix's revenue surged 257% to 79.32 trillion won ($54.6 billion), although that fell short of the 84 trillion won ($58 billion) average analyst estimate. Increased prices largely drove the growth. The average selling price (ASP) for DRAM jumped 30% quarter over quarter, while NAND (flash) prices soared 50% sequentially.

Surging memory prices also helped boost SK Hynix's margins. Gross margins zoomed from 54% a year ago to 83% and were up 400 basis points quarter over quarter. Operating margins, meanwhile, climbed from 41% a year ago to 76% and were also up 400 basis points sequentially. That helped lead to a 557% jump in operating profit to 60.54 trillion won ($41.8 billion), although that fell short of the 64 trillion won ($44.2 billion) analyst estimate.

Despite the revenue miss, SK Hynix said that memory demand remains strong. It noted that as hyperscalers continue to pour money into building out their AI infrastructure, they are consistently asking for more memory supply.

Newer technology is particularly in demand. SK Hynix said that HBM4 has demonstrated a clear technological advantage and will ramp up production in the second half of 2026. Meanwhile, with NAND, the 321-layer product is seeing the largest share of its flash memory production.

SK Hynix is working to increase capacity and said its capital expenditures (capex) will be in the high-40 trillion won ($27.6 billion) range. It also continues to lock in long-term deals, with about 10 customers now having LTAs (long-term agreements).

Image source: The Motley Fool.

Is the stock a buy?

Demand for memory remains strong, and even if the industry wanted to, it would be difficult to bring up supply to meet demand in the near future. There is only one company, ASML, that makes the EUV (extreme ultraviolet lithography) machines needed to manufacture HBM, graphics processing units (GPUs), high-performance central processing units (CPUs), and other AI chips.

On top of that, HBM consumes three times the wafer capacity of ordinary DRAM, further limiting the ability to increase supply. It also takes significant lead times to build new facilities, and most available clean-room space is being allocated to HBM to keep up with surging demand.

This dynamic is likely to keep memory prices high, as there are no signs that hyperscalers are slowing down their AI infrastructure spending. And if Alphabet is any indication, AI capex will likely rise meaningfully next year. SK Hynix has already said 2027 will likely see the tightest supply-demand environment the memory industry has seen, so expect another year of surging revenue and profits next year. Meanwhile, the company expects memory supply constraints lasting through at least 2030.

Currently, the stock's ADRs trade at a forward price-to-earnings (P/E) ratio of just about 5 times, which is a minuscule multiple. While there is a fear that the memory cycle will crash, that likely won't happen anytime soon, and with the company locking in long-term supply deals with no price caps, it still has strong growth ahead. Therefore, as the biggest supplier of HBM to Nvidia, this AI stock looks like a buy on this recent weakness.

Geoffrey Seiler has positions in Alphabet. The Motley Fool has positions in and recommends ASML, Alphabet, and Nvidia. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.