SK Hynix shares surged Thursday morning amid rising expectations for higher shareholder returns following the company's multibillion-dollar buyback announcement.

Shares of the world's second largest memory-chip maker rose as much as 13% in Seoul trading, leading the sector's gains and outperforming the benchmark Kospi's 6% rise. The advance marked a sharp reversal after local semiconductor stocks suffered a selloff on Wednesday.

The Nvidia supplier said after the market closed Wednesday that it would repurchase and cancel shares worth 40.004 trillion won, equivalent to $28.81 billion, or about 3.3% of its outstanding shares. The company also pledged to return more than 50% of its 2025-2027 free cash flow to investors, an increase from its previous commitment to return up to 50%.

Once completed, the planned share repurchase would be South Korea's largest-ever stock buyback.

The large-scale share buyback, announced before cumulative future cash flow is finalized, "demonstrates confidence in its future cash generation and financial strength," said Hanwha Securities analyst Park Jun-young.

Park expects SK Hynix to return at least 245 trillion won to shareholders until 2027. He estimates the chip maker could generate 491 trillion won in free cash flow over 2025-2027, with FCF projected at28.8 trillion won in 2025, 191.6 trillion won in 2026, and 270.6 trillion won in 2027.

Separately, Nomura projects SK Hynix to generate free cash flow of 156 trillion won in 2026 and 318 trillion won in 2027.

The shares appear severely undervalued, given the company's AI-driven earnings strength, lower business risks from long-term chip supply deals and substantial shareholder returns ahead, Nomura analysts led by CW Chung said in the note.

SK Hynix, like other major global chipmakers, has benefited from the artificial-intelligence boom driving demand for advanced chips. The stock has gained around 150% this year despite a recent pullback amid volatile trading and concerns about the sustainability of massive AI spending.

S&P Global Ratings said in a report Wednesday that the company's operating performance could remain strong over the next two years, supported by extremely favorable memory sales and robust profitability and operating cash flow.

"We see an increased likelihood that the memory market will become less volatile, with long-term agreements bringing in significant revenue and memory's role expanding within the broader AI industry," S&P said, raising its long-term credit rating on SK Hynix to A-minus from BBB-plus.