Why Samsung and SK Hynix's record AI profits aren't proving enough for investors

Samsung Electronics and SK Hynix are facing growing pressure from shareholders to increase dividends and share buybacks after both companies posted record profits fueled by artificial intelligence demand but stopped short of unveiling meaningful capital return plans.

The two South Korean memory chipmakers are generating cash at an unprecedented pace as demand for high-bandwidth memory (HBM) and other AI-focused chips continues to surge.

Yet their reluctance to commit to larger shareholder payouts has raised questions among investors about whether management remains fully confident in the durability of the AI-driven earnings boom.

Investor attention has also intensified following sharp declines in both companies' share prices from their June record highs.

SK Hynix shares have retreated around 48%, while Samsung Electronics has fallen about 37% from their record highs in June, amplifying calls for stronger shareholder-friendly measures.

Retail investors and fund managers demand action

South Korean retail shareholder platform ACT on Tuesday launched a campaign seeking an extraordinary shareholders' meeting at Samsung Electronics, calling on the company to repurchase roughly $32 billion worth of shares while also imposing limits on executive performance bonuses.

"This is not simply an expression of dissatisfaction over a falling share price. We are asking a basic capital-market question: who really owns a corporation?" ACT said in a statement reported by Reuters, adding that the initiative is intended to help Samsung become a more shareholder-friendly company.

"Retail shareholders are like a company's fan club: they praise it when it performs well and take out the stick when it does not."

Meanwhile, some investors have urged SK Hynix to raise shareholder returns to at least 80% of free cash flow, well above its current policy.

SK Hynix's 25-day quiet period following its American depositary receipt sale in the United States ended on August 4, clearing the way for potential announcements on capital allocation that analysts and local media have been anticipating.

Cash piles eclipse global technology peers

According to Reuters calculations using LSEG data, Samsung and SK Hynix are expected to hold a combined $263 billion in net cash by the end of this year.

That figure is more than double Nvidia's estimated $102 billion cash balance and exceeds the combined cash reserves of the remaining six members of the Magnificent Seven group of US technology companies.

Samsung's semiconductor division last week reported operating profit of 89.2 trillion won ($61.7 billion) for the second quarter, more than 250 times higher than the corresponding period a year earlier, reflecting the extraordinary demand for AI memory chips.

The company posted overall operating profit of 60.5 trillion won during the April-June quarter, up from 9.2 trillion won a year earlier, although slightly below analysts' estimates of 64 trillion won compiled by LSEG SmartEstimate.

SK Hynix has also accumulated record levels of cash.

The company said its net cash reached 88 trillion won at the end of June and aims to increase that figure to more than 100 trillion won to support customer demand and maintain business stability.

Investors seek stronger signal of confidence

Many investors argue that retaining such large cash balances risks sending the wrong message to markets.

Any announcement outlining larger shareholder distributions would provide the "clearest signal" that management believes the AI boom has structural rather than cyclical characteristics, Templeton Global Investments portfolio manager Yiping Liao told Bloomberg.

"If you think there's less cyclicality, you don't need so much cash on your balance sheet," Liao said.

"And we know that they're going to earn a phenomenal amount of cash this year and next year."

Compared with international peers, Samsung and SK Hynix continue to lag in shareholder returns.

Both companies currently target shareholder distributions equivalent to about half of free cash flow, whereas US memory chipmaker Micron pledged in June to return 100% of free cash flow to shareholders.

"If you stick to something around a 50% free cash flow return, you are going to end up with an incredibly inefficient balance sheet," Richard Clode, portfolio manager at Janus Henderson Investors, whose fund owns SK Hynix shares, told Reuters.

"If you come out and say, 'Well, we're a bit unsure about the future, so we can't commit to a long term, big shareholder return program,' then you're just feeding the narrative that this is temporary, this is cyclical," he added.

Companies promise updates later this year

During last week's earnings call, SK Hynix said only that it was evaluating additional shareholder return measures and would announce details later this year, leaving investors wanting greater clarity.

JPMorgan analysts subsequently lowered their target price for SK Hynix shares, saying that a "clear stance on capital allocation is imperative ... to restore stock sentiment."

In comments provided to Reuters, SK Hynix said: "Based on record-high cash generation capabilities, the company believes that it can meaningfully expand shareholder returns while maintaining investments and financial soundness."

Samsung similarly indicated that discussions on its shareholder return policy are ongoing.

"While we remain focused on maintaining a healthy balance sheet to manage cyclical risks and fund growth initiatives, we are also exploring ways to enhance shareholder returns in a sustainable manner," the company told Reuters, adding that it aims to announce details "very soon."