SK Hynix just proved AI trade is running on borrowed confidence

SK Hynix just posted one of the best quarters in its history, and the market punished it anyway.

Operating profit surged 557% year-on-year to 60.5 trillion won, a number that would have been unthinkable two years ago.

Yet because it fell short of the 64 trillion won analysts expected, the stock fell as much as 20% in Seoul before closing down 9.6%, and its US-listed shares dropped below their Nasdaq offering price. A company grew profit more than sixfold and still got sold off hard enough to wipe out its IPO gains.

This reaction tells you everything you need t know about where this AI trade actually stands. Investors chasing it need to look past the trillion-dollar figures and ask a much harder question.

South Korea’s Kospi index dropped as much as 8.1% this week, its lowest level since April 20, as memory giants Samsung Electronics and SK Hynix each slumped more than 9%. Japan’s chip-heavy Nikkei 225 fell 4%.

This wasn’t a random wobble. The market is finally pricing the circularity risk it’s been ignoring for months.

When two of the world’s most important chipmakers can lose close to a tenth of their value in a single session, on a blowout earnings beat, that tells you how fragile the confidence underpinning this entire sector has become.

New mapping of the AI industry’s biggest players shows chipmakers, cloud giants, and AI labs increasingly investing in one another and buying from one another in the same closed loop.

Nvidia funds OpenAI. OpenAI pays Oracle and Microsoft for cloud capacity. Oracle and Microsoft turn around and buy Nvidia chips with the proceeds. The same dollar gets counted as revenue three times on its way around the loop.

This is not demand. It’s an accounting trick wearing a growth story as a costume.

Nvidia is valued at $4.5 trillion and has committed up to $100 billion to a company, OpenAI, that is on track to lose roughly $14 billion this year. Would any bank underwrite that loan on those terms? Of course not. But dress it up as an AI investment and Wall Street applauds.

Oracle, meanwhile, is sitting on a backlog north of $500 billion, built heavily on commitments from a customer that has already admitted, in public, it may not be able to pay for the computing power it has ordered. This isn’t a rounding error. It’s the fault line running under the entire AI infrastructure trade, and today’s SK Hynix reaction is the clearest sign yet that investors are starting to feel it.

The bigger danger for Western portfolios isn’t inside the loop. It’s outside it.

While Silicon Valley recycles the same capital between five companies, Chinese labs are shipping frontier open-source models trained on domestic chips, at a fraction of the cost, and developers are already voting with their traffic. China is not playing catch-up anymore. In several places, it’s setting the price and the pace, and Silicon Valley is reacting to it.

China is going to win parts of this race, and pretending otherwise does investors no favours. Every major tech shift in history has produced winners, losers, and brutal new competitors.

None of this means investors should run from AI. It means they should stop investing in the narrative and start investing in the balance sheet.

The companies that win will be the ones with real customers paying real money, margins that don’t depend on their own supplier lending them the cash to buy the product, and tech that still works if the financing dries up. Periods exactly like this one, loud, leveraged, circular, are what separate durable companies from fragile ones.

History rewards the investors who spot the difference early and punishes the ones who mistake the noise for the signal.

The test for any AI holding right now is simple. Run three checks. Where does the revenue actually originate? Would the customer still be a customer if the supplier stopped funding them? And how much of that company’s edge survives a Chinese competitor delivering 80% of the performance at a fraction of the cost?

The reward goes to the investors doing the work now, not to the ones still cheering the circularity as though it were growth.

SK Hynix just showed what happens when the market stops taking that on faith.