The supercycle benefits from AI storage are accelerating their realization, as SK Hynix unveils its largest shareholder return program in history.
On Wednesday, SK Hynix announced plans to repurchase and cancel treasury shares worth 40 trillion won (approximately $28.6 billion). The company also pledged to return at least 50% of the free cash flow generated between 2025 and 2027 to shareholders. Additionally, SK Hynix stated it will continue to pursue further share buybacks and cancellations, with more details on shareholder returns to be disclosed alongside its third-quarter earnings announcement.
Following the news, SK Hynix's U.S. shares surged over 4% in after-hours trading, having earlier fallen more than 3%. Its shares on the Korean exchange also erased an 8.3% decline in after-market trading. Amidst an AI chip demand-driven memory price uptrend that is showing signs of moderation, this massive shareholder return plan provides fresh value support for investors and reinforces market confidence in the stock's bottom after peak earnings.
Buyback Details: Aimed at Cancellation, Not Mere Price Support
According to a filing with regulators, SK Hynix will repurchase up to 24 million treasury shares between August 20 and November 19. The stated purpose is explicitly for share cancellation, not for market value management or employee incentives.
Bloomberg reports that this 40 trillion won buyback forms the core of the company's shareholder return framework for 2025-2027. The company has committed to returning at least 50% of its cumulative free cash flow over the three-year period to shareholders through dividends, buybacks, and cancellations. The annual fixed dividend has also been raised from 1,200 won per share to 1,500 won.
The direct confidence for SK Hynix to launch such a large-scale return program stems from its rapidly growing cash reserves. The company's second-quarter revenue reached 79.3 trillion won, with operating profit hitting a record 60.5 trillion won. As of the end of Q2, cash and cash equivalents soared to 88 trillion won, a quarter-on-quarter increase of 33.6 trillion won. Borrowings decreased to 18.6 trillion won, expanding net cash to 69.4 trillion won.
Meanwhile, SK Hynix recently raised approximately 39.9 trillion won through a secondary offering of ADRs on Nasdaq. These funds will be primarily allocated to expansion projects such as the Yongin wafer fab, the Cheongju advanced packaging facility, and EUV equipment procurement. Nevertheless, consistently growing operating cash flow continues to provide ample room for shareholder returns.
Buyback Expectations Had Been Mounting; Samsung May Follow Suit
This announcement was not entirely unexpected by the market. As reported by Wall Street on August 12, the combined shareholder return size of Samsung Electronics and SK Hynix could exceed 200 trillion won (approx. $141.2 billion), potentially setting a record high, with a plan possibly announced before the end of August. At that time, boosted by these expectations and news that Singapore's sovereign wealth fund Temasek planned its first direct investment in the two companies using its own capital, both companies' shares rose about 6%, helping the KOSPI index break past 6,500 points.
The market had previously anticipated that SK Hynix's shareholder returns in an extreme scenario could approach 100 trillion won. The announcement of this 40 trillion won buyback represents a phased realization of this framework. Further disclosures during the Q3 earnings release remain noteworthy.
Bloomberg analysis points out that as the pace of memory chip price increases begins to slow, the logic of relying solely on earnings growth to drive valuations faces challenges. Share buybacks and cancellations directly reduce the number of outstanding shares, boosting earnings per share and net asset value accordingly. Coupled with substantial cash returns lowering holding costs, this helps build a floor under the stock price during the transition period as investors gradually digest peak growth expectations.
