Jim Cramer of CNBC stated on Wednesday that the impressive financial report of SK Hynix proves that even as the market becomes increasingly skeptical about large-scale data center construction, artificial intelligence stocks can still rise.
The stocks of this South Korean storage chip giant, listed in New York, soared by more than 13% after announcing results that exceeded expectations and an optimistic outlook. This report also drove up other chip stocks, with Micron rising by nearly 6%, Arm rising by 4%, and AMD rising by 3%. Against the backdrop where strong financial reports sometimes are not enough to boost some AI-related stocks, this round of gains is particularly noteworthy as investors are questioning whether the massive expenditures surrounding data centers can truly yield returns.
“SK Hynix gave a demonstration last night, showing everyone how to drive up stock prices,” said the host of “Mad Money”.
Cramer pointed out that there are several factors that have helped SK Hynix withstand the skepticism on Wall Street. Firstly, it has a relatively low valuation. Based on 2027 earnings, the company's current valuation is only 4 times, which reflects the market's doubts about whether the prosperity of memory chips will continue. It is precisely for this reason that there is room for the stock price to rise once performance exceeds expectations.
And SK Hynix indeed delivered impressive results. The company's revenue exceeded expectations by about 6%, with a gross margin of 85.7%. The company also expects its shipments this quarter to grow by a mid-to-high range of 20%, which is higher than the 10% growth in the third quarter.
"Growth acceleration is like giving growth investors a stimulant – it allows them to indulge in all sorts of imaginations about how great the future could be," said Kramer.
Perhaps most importantly, SK Hynix stated that with the support of long-term customer agreements, its production capacity has actually been sold out until 2029. Kramer said that this outlook indicates that the demand for storage chips used in AI data centers remains strong.
He also emphasized the company's plan to make significant investments in new manufacturing equipment. Historically, expanding production capacity has often led to concerns of over-supply and a decline in chip storage prices. “This time, demand is so strong that SK Hynix is aware that increasing supply will not saturate the market,” said Klermer. “That demonstrates an unusual level of confidence.”
The company also disclosed plans to provide substantial returns to shareholders through dividends and stock repurchases, which provides investors with another reason to be bullish.
In Cramer's view, the combination of low valuations, strong performance, accelerating growth, sustained demand, and shareholder returns provides a model for AI related companies to win over investors in a challenging market.
“If you can overcome this series of challenges, then the market will recognize you as a winner,” he said.
Cramer stated that these results also have a positive impact on Micron. Micron is a stock held by Cramer’s charitable trust, which is part of the CNBC investment club. He pointed out that Micron’s valuation is not high either, and it also has similar long-term customer agreements. In addition, he mentioned that as the financial restrictions under the Chip Act are relaxed on December 9th, this chip manufacturer may also use its growing cash reserves to undertake a large-scale share repurchase.
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