The stock of memory chipmaker SK Hynix Inc. fell in Seoul on Monday, following the completion of the largest-ever US IPO by a foreign company. Traders pointed to profit-taking and a shift to American Depositary Receipts (ADRs) as key reasons for the decline in its Korean shares.

On Monday, the company's shares in Seoul dropped as much as 11%, hitting their lowest level in over a month. This came after its ADRs, listed as SKHYV.US, debuted on the Nasdaq on Friday, surging nearly 13% on their first day of trading, largely fueled by strong buying interest.

Divergent Performance for SK Hynix Shares

"The ADR listing was very successful, but much of that success had already been priced in by the market," said Chan H Lee, managing partner at Seoul-based hedge fund Petra Capital Management. "Today's decline appears to reflect a typical 'sell the news' reaction and profit-taking, rather than any change in fundamentals."

NH Investment & Securities senior analyst Ryu Young-ho also noted that investors took profits after the US listing, while market sentiment was impacted by cautious expectations for SK Hynix's second-quarter performance. He pointed out that while investors had anticipated growth in shipments of its HBM4 chips starting from Q2, this growth does not seem to have materialized on a large scale.

The company's $26.5 billion US IPO was closely watched as a test of demand for overseas offerings and the sustainability of the AI boom. SK Hynix Inc. has drawn global investor attention due to its crucial role as a supplier of high-bandwidth memory (HBM), a product used alongside AI processors from companies like NVIDIA Corp.

Despite recent market concerns about overvalued AI stocks and excessive spending levels, the offering was oversubscribed by more than seven times. Data shows its ADRs closed on Friday at a premium of about 15% compared to its shares listed in Seoul.

Since late 2022, as the AI boom has driven up prices for various memory chips, SK Hynix's shares in Seoul have skyrocketed more than 25-fold. The stock is also prone to sharp volatility due to the popularity of leveraged exchange-traded funds (ETFs) that track it.

This volatility has also affected the benchmark Kospi index in South Korea. On Monday, the index fell over 6%, prompting the Korea Exchange to temporarily halt program trading. Shares of its main rival, Samsung Electronics Co., Ltd., also dropped as much as 7%.

Future Outlook for the AI Chip Cycle

The AI frenzy has pushed market expectations to increasingly difficult-to-surpass heights. According to a Monday report from Korea Investment & Securities, SK Hynix's Q2 operating profit is forecast to be 60.4 trillion won, 8% below the market consensus of 65 trillion won. The reasons for the quarter-on-quarter margin decline include a higher proportion of HBM shipments relative to the overall market during the period, with the average selling price (ASP) of its products being lower than the market average.

While overall memory prices continue to rise due to severe shortages, HBM supply contracts are often based on less flexible long-term agreements. Many industry insiders cite this as evidence that AI has spawned a "super cycle" for the chip industry, potentially breaking the inherent boom-and-bust cycle of memory chip demand.

SK Hynix Inc. CEO Kwak Noh-Jung stated last Friday that memory chip shortages could persist beyond 2030. Nevertheless, memory manufacturers are racing to expand capacity, raising concerns that profits could eventually decline once demand subsides.

"The additional capital raised by SK Hynix is not for dividends but for increasing capacity," said Aleksey Mironenko, Head of Global Investment Solutions at Leo Wealth. "At the same time, buyers are constantly innovating to reduce the memory and computing resources needed to complete tasks. This suggests demand will gradually weaken while supply continues to expand."

Amid market worries about an industry-wide capacity expansion wave and doubts over the sustainability of AI capital expenditure, SK Hynix's share price has fallen more than 30% from its all-time high in June. Several high-leverage ETFs tracking the stock, listed in Seoul at the end of May, have seen their net asset value drop nearly 40%.

Technical indicators suggest the chipmaker's rally has cooled after the frenzy earlier this year. MRM Research analyst Nico Rosti stated that the stock is currently at "severely oversold" levels. "The price could fall for another week, but we believe this is a good buying opportunity," Rosti said. "A rebound in SK Hynix's Korean shares should push up the ADR price. Therefore, now is a good time to buy."