By Joyce Lee and Heekyong Yang

SEOUL (Reuters) -South Korea’s SK Hynix posted its highest quarterly profit since 2018 on Thursday as the Nvidia supplier said strong AI chip demand will only get stronger, such as for high bandwidth memory (HBM) used in generative AI chipsets.

“AI demand continues to grow above expectations… We expect next year’s HBM shipments to more than double this year’s,” Head of DRAM Marketing Kim Kyu Hyun said in an earnings call.

However, SK Hynix shares dropped as much as 8.4% in morning trade, tracking declines in U.S. shares such as Nvidia, as tech firms’ results failed to meet sky-high investor expectations.

The world’s second-largest memory chip maker has benefited the most among peers from AI-driven appetite for high-end chips and enterprise solid-state drives (eSSDs), following its early entry and large investment in the segments.

The company reported 5.47 trillion won ($3.96 billion) in operating profit for April-June, its highest since the third quarter of 2018.

The figure compared with a loss of 2.9 trillion won a year earlier and was in line with the LSEG SmartEstimate, which is weighted toward analysts who are more consistently accurate.

Revenue rose 125% to a record 16.4 trillion won.

AI DEMAND

Prices have been lifted by explosive demand for high-end DRAM chips such as HBM, chips used in data centre servers and gadgets that run on-device AI services.

“DRAM prices are rising despite the lack of complete recovery in traditional buyer demand, as chipmakers concentrate production capacity on HBM,” CFO Kim Woohyun said.

SK Hynix leads the HBM market and is the main supplier of those chips to Nvidia, in competition with Samsung Electronics and the United States’ Micron. Nvidia commands some 80% of the artificial intelligence chip market.

SK Hynix began mass production of fifth-generation HBM chips – called HBM3E – in March, with initial shipments going to Nvidia, sources previously told Reuters.

On Thursday, the chipmaker disclosed plans to ship the next versions of HBM chips – the 12-layer HBM3E starting in the fourth quarter and the HBM4 starting in the second half of 2025.

Samsung has yet to meet Nvidia’s standards for HBM3E chips, though Samsung’s fourth-generation HBM – dubbed HBM3 – has been cleared by Nvidia for use in its less-sophisticated graphics processors, the H20, developed for the Chinese market, sources have told Reuters.

“SK Hynix is saying it will keep its technical leadership, stay ahead of competitors,” said analyst Lee Min-hee at BNK Investment & Securities. “But investor expectations are so high they may be hard to meet, and in the short term, the stock price may not rise as much.”

HBMs could account for 20% of SK Hynix’s profit for DRAM chips by the end of 2024, from almost 0% in the first half of 2023, analysts said, given Nvidia is likely to accelerate plans for next-generation graphics processors to meet soaring demand created by the generative AI boom.

In May, SK Hynix CEO Kwak Noh-Jung said its HBM chips were sold out for this year and almost sold out for 2025.

One of South Korea’s top stock picks for the AI boom, SK Hynix shares have risen 47% year-to-date as of Wednesday.

($1=1,380.3400 won)

(Reporting by Joyce Lee and Heekyong Yang; Editing by Tom Hogue and Christopher Cushing)