SK hynix Stock Jumps as AI Memory Expansion Accelerates. How to Play SKHY Here.

SK Hynix (SKHY) is back on everyone's mind as the South Korean memory giant announced plans to construct its new manufacturing facility in the Miyagi prefecture of Japan. The possible investment reportedly runs into trillions of won, according to local Japanese media, as SK Hynix gears itself up for the future rise in memory demand across the globe.

This timing is fascinating as the artificial intelligence infrastructure is gobbling more and more of high-performance memory and SK Hynix appears to be one of the companies to reap the benefits due to its leading position in high bandwidth memory (HBM).

South Korea-based SK Hynix is among the largest memory semiconductor manufacturers that make DRAM, NAND flash, and HBM products, which are widely used in AI accelerators and data centers. The current market capitalization of the company amounts to around $1.19 trillion.

SKHY stock is trading at about $155. That puts it approximately 20% below its 52-week high of $194.80, and yet it climbed up by almost 25% from the 52-week low of $124.80. The recent reports regarding manufacturing plans were initially supportive of the price movement, helping it grow by more than 2%, while the stock was up 0.9% during Friday trading. Today's session so far has been less kind to SKHY, though, and it is down over 5% as of this writing.

One of the most intriguing features of the company is its valuation. The stock is traded at around 6.1 times of its forward earnings and the price-to-sales (P/S) ratio of 8.6 times. The forward P/E ratio of 6 times doesn't look like a terribly high of a valuation for a business with fast-growing profits, though it is important to keep in mind that memory is a cyclical business and current profits cannot necessarily be extrapolated into the future.

That is why this proposed investment into Japan is important since constructing substantial new capacity involves huge capital expenditures, though at the same time SK Hynix tries to strike a balance between expanding capacity and not risking adding excessive supply. Management has specifically stressed the importance of keeping its capital expenditure discipline as part of preparation for future growth opportunities.