Some Investors Believe SK Hynix Could Be the Next Big AI Stock. History Says It's Not Time to Buy Shares Just Yet.

South Korean memory chip company SK Hynix (NASDAQ: SKHY) began trading on the Nasdaq Exchange through a large secondary listing earlier this month, and after an initial boom, the stock has been pretty volatile.

SK Hynix's common shares were already publicly traded on South Korea's exchange, and the new listing was for its American depositary receipts (ADRs) -- essentially, certificates that represent the underlying foreign stock, making it simpler for U.S. investors to buy and sell it on American markets.

Many investors are likely hoping SK Hynix will be the next big artificial intelligence (AI) stock. The company provides important memory products for data centers, and its sales and earnings have been surging amid rising demand and tight supply.

Yet despite all that SK Hynix has going for it, there's a good reason why investors should at least wait until next summer before they consider buying the stock.

Image source: Getty Images.

What SK Hynix does and why investors are excited about it

SK Hynix sells NAND flash and DRAM memory that goes into a host of technologies, from Apple's iPhones to AI data centers. Just like peers such as Micron Technology, SK Hynix is benefiting from a strong spike in demand for memory processors driven by accelerating AI infrastructure spending. The deep shortage this has led to is not just boosting sales for memory companies, but also benefiting their bottom lines because they can charge much more for memory chips.

SK Hynix's sales jumped 198% year over year to $35.5 billion in the first quarter, and its earnings popped almost 400% to nearly $27 billion. This impressive top- and bottom-line growth is why many investors are excited about the company's long-term potential. The company's operating margin also reached a record 72% in the first quarter, up from 42% in the year-ago quarter.

And as long as demand for memory continues to boom, SK Hynix will keep benefiting. The company is one of the leading memory providers for Nvidia and commands an estimated 58% of the high-bandwidth memory (HBM) market. For comparison, Micron has just 21% of the HBM market.

And there's a good chance that memory demand will keep outpacing supply. A host of tech companies are battling for leading positions in the AI sector, and to stay competitive, most of them are spending piles of cash. The top four hyperscalers -- Meta, Alphabet, Microsoft, and Amazon -- have said they plan to spend a combined $750 billion on AI infrastructure this year alone.

No one knows when the pace of that spending will wane, but the answer is probably not anytime soon. Alphabet has already said it will spend more next year than it spent this year. And other companies, like SpaceX, are ramping up their AI capex as well.

In short, SK Hynix's memory products will likely remain high on tech companies' shopping lists for a while.

It's not the time to buy SK Hynix stock just yet

All of the above provides a pretty compelling case for buying SK Hynix stock right now. Adding to the stock's appeal is that its shares trade at a price-to-earnings (P/E) ratio of just 28, far below the tech industry's average P/E ratio of 35.

So what's the problem?

SK Hynix's ADR shares currently trade at about a 35% premium compared to its common shares in South Korea, and the premium has been as high as 51%. A 2025 study by MCSI found that from 2020 to 2025, the average divergence in price between ADRs and their locally listed common stocks was in the range of 2% to 4%.

As a recent Financial Times article noted:

"Most ADRs trade with a small (less than 5 per cent) premium above the foreign-listed equity due to some mixture of convenience and fees. A 51 per cent premium is huge, and speaks to the enormous US flows into memory at this exceptional moment."

In short, the price premium that U.S. investors are paying for SK Hynix now isn't normal. And the gap likely won't last.

To be sure, some premium pricing can persist. Taiwan Semiconductor, another popular AI stock, currently has a 15% ADR premium due to heavy U.S. demand. But SK Hynix's premium is well beyond that.

History suggests the gap will eventually narrow, putting downward pressure on the ADR price. Until that premium cools off significantly, investors may want to hold off on buying into this major memory chip player.

Chris Neiger has positions in Apple. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Micron Technology, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.