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The largest semiconductor listing in global history is finally happening. Memory maker SK Hynix is debuting on the NASDAQ and raising $29 billion, nearly five times as much as Nvidia challenger Cerebrus recently raised. Today, I'm going to tell you exactly how to navigate one of the hottest stocks in the world right now.
You see, SK Hynix isn't trading for the very first time. They're trading over in Korea, a place I recently visited to drink soju and study Korean culture with some hostesses under the guise of doing research work for our vesting in Korea video. Did you know Korea was the best performing stock market in the world last year?
If you invested in the iShares South Korea ETF, you would have have tripled your money over the past year. And guess what the largest stock in Korea is right now? It's SK Hynix. But Joe, how can SK Hynix be having an IPO when they're already trading over in Korea? Ah, you're paying attention. Exactly right.
This is not an initial public offering, it's a cross listing. SK Hynix is going to start trading on the NASDAQ as an American depository receipt, which means that listing represents a certain number of shares or perhaps a fraction of a single share of the same shares that trade on the South Korean exchange.
And what that means is anyone pretty much with a brokerage account that can access US stocks can now trade SK Hynix. It's not the case right now. SK Hynix only trades on the Korean exchange, which means you need to get an account with Interactive Brokers that recently approved investors to trade Korean stocks, then you need to get some Korean won, that's their currency, the won, and then use that to purchase shares.
In other words, SK Hynix is soon going to be available to all the apes in the United States, and we can only expect them to act accordingly. But here's the catch. We already know what SK Hynix shares are worth because they're trading over in Korea. And if it starts trading at let's say a 10% premium in the United States, that's going to get arbitraged away.
The takeaway is simply this, we already know the value of these shares today cuz they're trading in the Korean exchange. However, they're currently trading at a meaningful discount because of numerous reasons, the biggest being that they're still an emerging market. You sure about that? Now, when I worked at MSCI, we would always get questions about this.
Here you can see good old Henry was talking to CNBC recently about why the world's top-performing stock market is still considered an emerging market by MSCI. One of the major reasons for that is the won doesn't trade 24/7. You can only buy it during trading hours in Seoul. So, that sort of makes it difficult for asset managers or people trying to invest in Korea to balance their portfolios.
And Franklin Templeton did this great piece on tackling the Korea discount. Of all the emerging markets out there, all of its peers, it actually has the strongest discount, which is quite amazing when you spend time in that place, right? It's very developed. Now, some analysts out there are anticipating that this discount for SK Hynix, at least, will evaporate.
Now, we need to look at valuation for SK Hynix to determine if it's trading at a discount, but that's really hard to imagine given just how strongly this stock has performed. Since we first covered the company's potential as a play on high bandwidth memory or HBM, shares have soared a thousand percent.
Monostrodamus-like investing acumen. Over the past year alone, shares have soared 800% versus a Nasdaq return of 33% over the same time frame. I was talking with a premium subscriber yesterday, he was remarking that 33% for a major index to go up in a single year is quite remarkable. He said, "Is that normal?" I said, "No, not really." Intrinsic value doesn't get created that quickly, does it?
Well, in the case of SK Hynix, it kind of does. Last quarter, they brought in as much revenue as they did in 6 months for the year prior. But, the real surprise was profitability. They're pissing profit like a racehorse. Why? Well, that's because AI data centers are being invested in heavily by hyperscalers who are spending trillions.
That translates into a need for memory, especially high-bandwidth memory, memory, which SK Hynix happens to be a leader. They have a 56% market share in high-bandwidth memory. That's one of the reasons that we like the stock. We really like leaders. And they're a global leader in numerous types of memories, actually.
You can see these metrics taken from their S-1 filing document. And because they're a leader and because demand is absolutely unprecedented right now, they can charge whatever prices they want. You pay me. It's kind of like Nvidia. See what happened to Nvidia's gross margins? Well, that's happening to SK Hynix's gross margins.
That's a metric you can watch cuz if it starts to reverse, that's going to tell you something. Just look at this gross margin appreciation on a quarterly basis. That's absolutely insane. Love this nice smooth trend, as well. Now, a word of warning, okay? Be careful when you're analyzing foreign stocks.
I spent 10 minutes trying to figure out why this diagram here in their S-1 filing said they had $97 billion in 2025. Then I realized what was the won. OH, BROTHER, THIS GUY STINKS. THAT'S RIGHT. They're using Korean currency, the won here, not US dollars. That's actually in trillions. Pay attention to exchange rates.
If you have a currency that moves around a lot, that can really mess with your results. Or subscribe to this channel and our overworked, underpaid MBAs will do the work for you. So, we pulled some information out of the S-1, made some observations. First of all, there's some serious acceleration in revenue growth.
We know that, right? The gross margins are going up. So, last year they were 60% last quarter 79% remarkable. But, what's this finance income line? Well, I'm going to go ahead and elaborate on that in our Discord server for our premium subscribers. We have to leave something for the folks that pay the bills.
And look at that profit. This massive amount of profit that this company is taking down as a result of their pricing leverage at the negotiation table. Now, what we know is this. Memory is a cyclical commodity and bulls are going to propose that this time it's different. It was the fourmost dangerous words in investing.
For example, Micron's CEO recently raised this notion of memory demand going through the roof because of humanoids. By the way, we just finished a research piece on humanoids that's quite edifying. You have to give that a look. Now, the bears say, of course, this time it's not different and demand destruction alone is going to result in an eventual decline.
Not to mention all the other potential factors that could cause all these hyperscalers that are making these massive investments to start pulling back. Imagine how much these memory makers are building out their infrastructure right now to meet the demand and what happens with all that capacity if that demand starts to subside and you have factories sitting idle.
That doesn't look good at all. Any number of reasons that we can think of along with Rumsfeld's unknown unknowns could bring the AI trade to a screeching halt. You know what happens if the AI trade comes to a halt, don't you? Pure hell, and that's the topic of next week's video. It's called what happens if the AI bubble bursts.
Subscribe. It's going to be a good one. So, should you buy SK Hynix? Well, those of you with Interactive Brokers, you can buy it on the Korean exchange already. Before you do that, you're going to want to look at valuation. You always do that when you're investing in volatile disruptive tech stocks.
So, we're going to use three methods to value this company. Simple valuation ratio, that's our own price-to-sales measure. You simply take market cap, divide it by last quarter revenues times four. It's called annualized revenues. Very simple, anybody can do it, right? Thus, the name simple valuation ratio.
Then we're going to look at current traditional price-to-earnings ratio and forward price-to-earnings ratio. That's taking into account analyst expectations, usually the average in the future. So, you can have a forward look at valuation, as the name implies. So, check this out. When we look at SVR, the number comes out to be nine.
Okay, what does that mean? Well, you need a benchmark, okay? The average on the Nasdaq is somewhere around seven to eight, I believe. Our own average, so we have a disruptive tech stock catalog. It has over 400 disruptive tech stocks. It's available to premium subscribers. And in there we average, I think for 160 names, we average this SVR.
Ours sitting right now, I think around 8.5. So, roughly mirroring the Nasdaq. SK Hynix, by those benchmarks, is not overvalued. It's always important that you compare numbers to a benchmark, otherwise they're meaningless. Price-to-earnings ratio, so you take the market cap, and in this case we're dividing that by the trailing 12-months net income.
We get 25. Well, that's about average compared to the Nasdaq, which sits somewhere around that number. Then what we can do is we can look at forward price-to-earnings ratio. Now, this is easy to do. You ought to do it. You do it for any stock. Go to Yahoo Finance. I like Yahoo Finance because it's just simple to get to, and while they're changing it up a bit right now, you can still access information fairly easily with a couple clicks, okay?
Click the analysis link there on the lower left, and scroll down to where it says earnings estimates, and it tells you what analysts are estimating, okay? Cuz that's all we have. The company potentially could give us guidance, so we could use that, but in the absence of that, we use analyst estimates.
And I always just take the furthest out number, which you can see here is 433,000. Now don't worry about the numbers here. This is all in won. As I said, it gets confusing, but you're going to divide the share price in won by the forward estimate, the average forward estimate, and you get six. Okay?
So that's about a quarter of what it ought to be. And again, what you can do here then is start looking at benchmarks, right? Whenever you're pulling up these numbers. And what we're finding here is that SK Hynix is trading at a discount. So what are the next steps here? Well, let's hurry up and wait for the IPO or cross-listing to happen.
Then when it lists, get a properly calculated market cap. I've noticed a lot of the data vendors out there, the freely available data doesn't get calculated properly right away. So make sure you get a correct market cap, cross-check it against a couple data providers, then calculate your simple valuation ratio.
You already have last quarter revenues that we showed you earlier. Get an idea if it's overvalued from what it was trading at. Intrinsic value doesn't change immediately though. Some analysts would argue that that increased liquidity and availability to US investors deserves a premium, right? But in anticipation of that, set thresholds.
Do not exceed thresholds when it comes to valuation. For example, we don't pay more than three times that average of an SVR for any stock. So if it's 8.5, we won't pay more let's say than 25, an SVR of 25 for any stock. Doesn't matter, right? Set hard rules. Why pay more than what it's worth today? If you want buy it today, just go buy it on the Korean exchange.
Now we're going to keep our paying subscribers up to speed with exactly what happens here in our Nanalyze market open that gets sent every trading day. For the rest of you, the best thing to do next is to understand the memory trade more holistically. Check out this recent video we did on the memory trade. Give that a watch next. Thanks so much for taking the time to watch this today.
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