00:00Watch SK Hynix shares on NextTrade after its second quarter operating profit missed the average
00:05analyst estimate despite jumping more than 550%. Let's get more on this with Bloomberg
00:12MLive strategist Mark Cranfield and our markets reporter Anthony Stevens. Anthony, let's start
00:16with SK Hynix. I mean, this stock has become a sentiment test for AI hardware. How come
00:22the profit jump 500-fold is really not cutting it?
00:30Right. And this speaks to where expectations are, right? Like you have a record OP. It's
00:35a 557% jump. They're talking about 80% plus margins, 83. You have ADR that went into the
00:43results with 20% plus premium. And that speaks to the problem here. It's positioning and
00:50expectation meeting very high standards is becoming very difficult. So going into the
00:57results, there are no sales on this stock whatsoever. There are 40% plus analysts that are buys on
01:04this stock. The average target price is almost getting near double where the price is at the
01:10moment. So there's a lot in the price. There's a lot of expectations. And the market reaction
01:14was sharp on the open as NextTrade opened. It's starting to moderate a little bit. And this
01:19stock is obviously going to be volatile as it has been this entire time period. So it will
01:24dominate the Asian tech trading session, which was weak going into yesterday. So remember yesterday,
01:30we had a circuit breaker in Korea and the market traded through that circuit breaker. And now we
01:35have this event. So today is going to be an extremely volatile day meeting crowding, crowded
01:40positioning and an analyst base that is going to be surprised by this result.
01:45Mark, what are the implications for the tech sector now that we have the Philadelphia Semiconductor Index
01:51also in a bear market and this rotation continuing out of tech?
01:57Well, it's all about the threat from China, as Anthony was saying, positioning going into these
02:03high mix numbers. In fact, really going into the past couple of weeks has been very skewed
02:07towards the idea that the hyperscalers would continue to pay whatever it takes to get the chips they need
02:13to build their data centers to supply the AI products. Investors could see that they were enjoying the
02:19ride. Suddenly, there's a real threat from China, which is getting closer all the time that they can
02:24undercut pricing on a lot of these AI related chips. We've seen a number of IPOs in that sector,
02:31Chinese companies getting a lot of attention. The fact that they can do it at a cheaper price,
02:35not all the products, but enough to scare investors. And that is the threat to the whole chain.
02:41The fact that the hyperscalers may need to pull back, that the chip prices in the future won't be
02:46as high as being projected in the earnings calls that you see for Hynix, for Samsung, for the other
02:51major players. So the whole story is under threat. And that's why you've seen Hynix halving value in
02:57the past month or so. So even though the current numbers look outstanding, that still may not be
03:04enough. The fact that it has fallen by such a huge amount in the past few weeks may mean that
03:09today
03:09there is a bit of a bounce. By now, there might even be people who've got short of Hynix in
03:15the
03:15past couple of weeks, and they may be willing to take some profits. We're coming towards the end of
03:19July as well. That would be a pretty convenient time. That might not tell us very much about the
03:23future at all. What happens when we get into a new month in August? Positioning is much cleaner.
03:29Then we'll get a better read on whether or not people believe the hyperscaler story has legs
03:34or whether it's all over. And we have to go back to looking for other reasons to get involved in
03:39the
03:40tech story.
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