Some of the largest tech companies in China are planning a decade ahead. Alibaba (BABA), Tencent (TCEHY), and ByteDance (TikTok's parent company) are in talks with Korean memory chipmakers SK hynix (SKHY) and Samsung to secure long-term server memory.
Many investors think China’s largest memory maker, CXMT, could push prices down if it gets free access to Western buyers. But today, even Chinese companies cannot get enough memory at home. They are feeling the pressure and are looking outside their own borders to secure more supply.
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SK hynix already has a long line of customers, and it reported record third-quarter results. Operating profit increased 632% from the year before to 83.3 trillion won (about $63 billion). For every dollar of sales, SK hynix kept 80 cents as operating profit. The company says long-term agreements already cover more than half of its production capacity for 2027 and 2028. Management expects the memory shortage to continue through 2030.
www.barchart.com Why Chinese Companies Are Looking Outward
China's own largest memory chipmaker has sold out. CXMT was the fourth-largest DRAM maker by revenue in the first quarter, with a 7.6% market share. Alibaba, Tencent, and ByteDance already buy from it on multi-year contracts. However, the company is sold out through next year.
And worse for China’s memory customers, the country's largest domestic memory producers do not make the best chips for AI. Samsung and SK hynix still lead in the quality and stable mass production of server DDR and LPDDR memory. Yangtze Memory Technologies Corp. (YMTC), China's second-largest memorymaker, mostly does NAND memory and only entered the DRAM market this year. And CXMT plans to start sales of its first DDR5 server memory modules only before the end of 2026. U.S. export controls also stop Samsung and SK hynix from selling high-bandwidth memory (HBM), the memory inside AI accelerators, to China.
CXMT still works on HBM3, at least two generations behind SK hynix and Samsung. Thus, Chinese companies buy the next-best products: server DDR5 and low-power LPDDR5.
A Seller’s Market Could Last Until 2030
Buyers are losing power as demand is growing faster than capacity growth. Thus, buyers are likely to keep paying higher and higher prices for memory until either capacity growth starts to outgrow demand growth or the AI buildout slows down.
SK hynix expects memory shortages through 2030. It is also expanding its advanced DRAM and NAND capacity. Market researcher TrendForce forecasts that contract prices will continue to increase every quarter through the second half of 2027. The increases are smaller now: TrendForce expects 10% to 15% in the fourth quarter, compared to 90% to 95% at the start of 2026. But prices still go up.
The extreme demand for memory is causing memory companies to have a ballooning bottom line. SK hynix plans a 100 trillion won (about $75 billion) in shareholder returns for 2026, with 30 trillion won in cash dividends.
China Is Lining Up for SK hynix. Should You?
I wouldn't buy SKHY stock simply because Chinese Big Tech companies are buying. Most of the demand SK hynix and other memory manufacturers are receiving is from the U.S. due to the immense AI buildout. U.S. hyperscalers have much more capital they can deploy and are doing so very aggressively. Chinese demand is still a plus.
The more interesting part is the price of the stock, which trades at less than 4x forward earnings. A company with an 80% operating margin does not usually sell for 4 times next year’s earnings, as the market believes the memory cycle is cyclical and will not last. But again, one can argue that the cyclical downturn is already priced in, or that the true euphoric phase of the cycle remains ahead of us. Even if SK hynix's earnings halved next year somehow, SKHY stock will still trade at 8x, which remains too cheap.
And earnings are very unlikely to stall, let alone halve.
I'd buy and hold, especially as Big Tech shows no sign of slowing down on their tech spending.
www.barchart.com On the date of publication, Omor Ibne Ehsan did not directly have a position in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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