SK Hynix Inc. has announced plans for a substantial stock buyback totaling 40 trillion Korean won (approximately $29 billion). This move is aimed at stabilizing its shares, which had fallen over 50% in the preceding two months due to investor concerns about the sustainability of AI hardware spending. The company will repurchase and cancel up to 24 million shares between August 20 and November 19. Additionally, SK Hynix has committed to returning over 50% of its cumulative free cash flow to shareholders from 2025 to 2027, an increase from its previous target of up to 50%. This revised pledge amounts to roughly $170 billion.
Fellow South Korean memory chipmaker, Samsung Electronics Co., is also preparing record shareholder returns. Both companies are responding to market anxieties regarding the future of AI hardware expenditures. The announcements led to a positive market reaction, with SK Hynix shares rising as much as 9% in Seoul and Samsung Electronics advancing over 5%.
Analysts have largely viewed these shareholder return initiatives positively. Samsung Securities noted that SK Hynix's buyback and cancellation would reduce outstanding shares by approximately 3.3%, boosting earnings per share. Hanwha Investment & Securities estimated a 3.8% increase in EPS due to the buyback and projected cumulative free cash flow over the next three years to be around 491 trillion won, with potential total shareholder returns exceeding 245 trillion won based on the minimum 50% ratio. NH Investment & Securities also highlighted the change in SK Hynix's return criterion from "within 50%" to "more than 50%" of FCF, suggesting expanded shareholder returns are likely.
Despite these positive developments, the market is closely watching US long-term Treasury yields as a critical variable. Rising rates could increase funding burdens for data center operators, potentially impacting AI investment and, consequently, demand for HBM and DRAM from companies like Samsung and SK Hynix. CoreWeave, an AI cloud company, reported a $49 million operating loss in Q2, with interest costs reaching $640 million, highlighting vulnerability to interest rate risks.
However, some analysts, like Kim Dong-won from KB Securities, believe that the key factor is whether AI investment can generate returns quickly enough to offset increased financing costs. They suggest that the likelihood of a shorter payback period for hyperscalers' AI investments has grown. KB Securities also estimated that increased corporate bond issuance by US hyperscalers contributed about 0.3 percentage points to the US 10-year Treasury yield, but does not see this as a direct negative for Samsung's fundamentals, as AI demand remains strong with cloud capacity booked through 2028.
