SK Hynix Pushes for Multi-Year Microsoft Deals as Record Margins Face a Bonus-Bloated Future

During a visit to Redmond this week, SK Hynix chief executive Kwak Noh-jung sat down with Microsoft CEO Satya Nadella and co-founder Bill Gates to negotiate a fundamental shift in how the chipmaker sells its high-bandwidth memory. The Korean company is pushing to replace short-term purchase orders with fixed supply agreements lasting three to five years. Microsoft already uses SK Hynix’s HBM3E technology in its Maia 200 AI accelerators, and locking in multi-year contracts would give the tech giant guaranteed capacity while providing SK Hynix the revenue visibility needed to fund new fabrication plants. To support that expansion, the company recently acquired a building in San Jose, California, for research and production, and it has teamed up with Intel on alternative 2.5D packaging solutions for AI accelerators as TSMC’s advanced packaging lines grow strained.

Those ambitions are backed by historic financial strength. In the first quarter of 2026, SK Hynix posted revenue above 50 trillion won for the first time, an operating profit of 37.6 trillion won, and an operating margin of 72 percent — a new record. The balance sheet is equally impressive: cash holdings of 54.3 trillion won against liabilities of 19.3 trillion won, giving the company a net cash position of roughly 35 trillion won. Goldman Sachs expects a structural supply deficit to persist through at least mid-2027, and TrendForce forecasts DRAM prices will climb more than 70 percent in 2026. CEO Kwak’s trip to Microsoft signals that SK Hynix intends to use its strong hand to reshape commercial relationships while the market is squarely in its favour.

Analysts have responded with a flurry of target upgrades. Citigroup lifted its price target to 3.1 million won and reiterated a buy recommendation, projecting a 30 percent sequential jump in HBM chip prices in the fourth quarter of 2026. UBS raised its target to 1.7 million won on May 11, boosting earnings forecasts for 2026 and 2027 by 22 percent and 29 percent respectively, and describing the environment as a memory supercycle not seen in nearly three decades. LS Securities is more bullish still, pegging the target at 2.1 million won, citing SK Hynix’s dominant HBM position. The stock, which has surged 171 percent year to date, last traded at about 1.84 million won — within striking distance of its 52-week high, despite a small daily dip of roughly 2 percent.

Should investors sell immediately? Or is it worth buying SK Hynix?

The company’s generous profit-sharing model, however, could become a fresh headache for margins. SK Hynix pays out 10 percent of operating profit as employee bonuses, and last February the average payout to its roughly 35,000 workers came in at about 140 million won, or roughly $95,000 per person. That was made possible by a union agreement that removed a former cap of 1,000 percent of base salary for a decade. LS Securities analyst Jung Woo-sung warns that if rivals Samsung Electronics and other competitors begin handing out bonuses of similar magnitude, SK Hynix could face pressure for even larger disbursements, especially given the ongoing bonus dispute at Samsung’s labour union.

Yet the competitive landscape is shifting. Samsung has qualified its HBM4 chips at both Nvidia and AMD, and if mass production begins in the second half of 2026, SK Hynix’s share of the HBM market could slip from around 60 percent to between 50 and 60 percent. To stay ahead, SK Hynix plans to ship samples of its seventh-generation HBM later this year and begin volume production in 2027. It currently commands roughly 70 percent of Nvidia’s HBM orders.

Back in Seoul, a political scare briefly rattled the stock. An adviser to the South Korean president floated a special tax on highly profitable semiconductor companies, sending the KOSPI index down as much as 5 percent before the government backtracked, calling the proposal a private opinion. The episode underscored the regulatory noise surrounding Korea’s chip giants, but it did little to alter SK Hynix’s operational reality: the company’s HBM production capacity is essentially sold out through the end of 2026, and its 72 percent operating margin shows no sign of cracking yet.