SK hynix ADRs Hit Record High Amid AI Demand

SK hynix American Depositary Receipts (ADRs) surged 7.05% to close at $198.63, marking the highest closing price since their July 10 listing. This rally pushes the premium over the underlying South Korean shares to 43.32%, a significant divergence from the 19.13% gap seen at the end of July. The ADR price now converts to approximately 2.66 million won per common share, exceeding the underlying stock price by more than 800,000 won.

The divergence stems from strong demand for memory chips in the U.S. market, driven by the release of OpenAI’s next-generation AI model, Astra. While U.S. memory chip stocks rallied on expectations of renewed AI investment, SK hynix shares on the KOSPI failed to mirror this strength. The underlying shares remained stagnant due to poor sentiment among individual investors who bought during the June rally and are now sitting on losses.

Valuation Gap Widens Significantly

The ADR-underlying gap has expanded steadily, rising from 19.13% on July 31 to 34.52% on August 31, and reaching 43.32% in recent sessions. This trend reversed a temporary narrowing that occurred in mid-July when memory chip stocks corrected in both markets. The ADR price had fallen from $193 on July 14 to $126 on July 29 before recovering to the $150-$160 range in August.

Currency movements have also played a role in moderating the gap's expansion. The recent drop in the won-dollar exchange rate to the 1,330-won level has prevented the won-converted ADR price from rising further. Had the exchange rate remained in the 1,500-won range, the premium would likely have widened even more sharply, according to market analysis.

U.S. AI Optimism Drives Demand

Market analysts attribute the rally to the proven performance of OpenAI’s Astra model, which has bolstered expectations for increased memory chip demand centered on the U.S. market. Despite global oil price surges causing broader New York stock declines, memory chip stocks demonstrated relative strength. This divergence highlights a disconnect between U.S. investor sentiment, which is recovering, and the domestic Korean market, which remains cautious.

Potential Capital Flow Shifts

Long-term widening of the gap may trigger capital flows into the underlying shares. Passive U.S. funds that cannot access Korean stocks are currently flowing into the ADRs. However, if the premium persists, overseas long-term funds may perceive the underlying shares as relatively cheap and increase their holdings. Historical data suggests that roughly three-quarters of ADR gains are eventually reflected in the underlying stock prices, indicating a potential convergence.