SK Hynix IPO: Systemic AI Market Cap Exposure

In the upcoming weeks, another company that is systemically important to the AI megatrend is about to IPO. The South Korean company, SK Hynix (SKHY), wants in on the 300%+ year-to-date rocket-ship performance of Micron (MU), and why shouldn’t they considering both companies command significant market cap in the same corner of the AI megatrend (high-bandwidth memory and advanced DRAM for AI accelerators).

This report reviews the business of SK Hynix, the reasons it will IPO (and what that says about the state of the AI megatrend), and also considers the growing market cap of AI-related stocks as it pertains to “passive” market-cap-weighted index ETFs consistently outperforming many individual investors (hint: even passive ETFs make big changes to keep up with dynamic market megatrends), before finally concluding with a strong opinion about investing in SK Hynix and the AI megatrend at this point in the cycle.

SK Hynix: A Systemically Important AI Company

SK Hynix is one of the largest semiconductor/memory manufacturers in the world. Along with Micron (MU) and Samsung (SSNLF), it’s basically the only other company that can manufacture the DRAM and NAND flash memory that is critical to the AI megatrend.

Specifically, SK Hynix’s most strategically important product, High Bandwidth Memory (“HBM”), is one of the main bottlenecks in AI ecosystem (they cannot manufacture enough of it fast enough). This basically makes SK Hynix indispensable to the continued rapid growth of the AI megatrend.

For example, every major AI data center in the world requires enormous quantities of advanced memory (regardless of whether the ultimate winner in AI turns out to be OpenAI, Google, Meta, Microsoft, Anthropic or anyone else). This is a very good thing for SK Hynix!

Why IPO Now? The Current State of The AI Megatrend

SK Hynix is an indication of two, seemingly contradictory (but not really), things. First, the AI megatrend is alive and well. And second, valuations are getting rich, and this is often exactly why they IPO (i.e. when they can get a lot for their shares). This year (2026) is already shaping up to be a banner year for IPOs, with even financially strong mega-caps like Alphabet issuing more shares in the public market, for example.

And for perspective, at the start of this century, the “hot” internet bubble burst, but that doesn’t mean the internet died. Quite the contrary, the internet continued to grow massively, and the companies that harnessed it (basically the Mag 7) weren’t necessarily the leading companies during the bubble.

Rather—the market is dynamic, there will likely be winners and losers in this currently “hot” AI megatrend (just like there were winners and losers in the internet), and you should consider dynamically investing in the AI megatrend itself, not just investing in specific mega-trend stocks (this is basically what the market-cap-weighted indexes do, and it’s also a big part of the reason those indexes perform better than most individual investors over the long term—more on this in the next section).

The Major "Passive" Indexes are Not Passive On AI

Most investors cannot outperform a basic passive market index such as the S&P 500, the Nasdaq-100 or even the Dow Jones Industrial Average over the long term. There are many reasons for this—fees, taxes, trading costs, failed market timing attempts and emotionally driven investment decisions—but staying actively market-cap aware is another important contributor that is frequently overlooked.

Many people think of the S&P 500 as passive, but that doesn’t mean it never changes. The S&P 500 is a market-cap weighted index, which means it rebalances periodically to include more of the companies that have grown bigger and less of the companies that have decreased in size.

Not only does this dynamic say a lot about the importance of market cap weighted investing over equal weight investing (market cap weighting captures important changes such as the AI megagrend—which still has many years to run—even if “some” of the current megatrend leaders are a bit ahead of themselves in terms of valuation while others are not).

More specifically, the so-called “passive” indexes dynamically reweight their holdings to reflect changing market opportunities—and currently the AI megatrend is a big one that the indexes are capturing (they haven huge weights in the Mag 7, which have performed extremely well in recent years, while many individual investors do not—and have not).

For example, the indexes are working to prudently add shares of the recent massive SpaceX (SPCX) IPO (it already has a bigger market cap than almost all of the other companies in the S&P 500), while many individual investors are not.

Conclusion

SK Hynix is a critical part of the AI megatrend (because its specialized memory products are critical and in short supply). And while the “passive” Nasdaq 100 ETF, for example, may likely add SK Hynix fairly soon (it generally holds the largest 100 non-financial Nasdaq stocks), many individual investors will not—and this behavior is one of the endemic reasons why so many individuals cannot outperform a passive index ETF (i.e. many individuals don’t do a good enough job of applying disciplined portfolio changes to keep up with the dynamics of the market that are loosely reflected in market-cap-weighted index portfolio construction).

As for SK Hynix in particular, its valuation is huge (nearly half a trillion dollars), and depending on how the IPO goes (it will have an estimated ~$20B-$29B Nasdaq float), I may add shares soon. However, systematically ignoring these types of IPOs altogether is likely a long-term investing mistake simply because you are failing to keep up with the disruptive megatrends and economic shifts that “passive” market-cap-weighted index ETFs are capturing with discipline.

Be smart people. Do what is right for you.