SK Hynix & Software – AI Impact

SK Hynix Q1 26 – All cylinders

• SK Hynix reported excellent results, but the shares fell as I suspect that the whisper machine in Korea is talking about HBM memory share loss back to Samsung now that it is back on its feet.
• Q1 26 revenues / EPS were KRW52.6tn / KRW56,670 crushing consensus of KRW50.58tn / KRW37,810.
• Pricing has clearly remained very strong as gross margins have climbed 1000bp (10% points) from Q4 25 to finish at a record breaking 79%.
• What is more, almost all of these gains flowed straight to the bottom line and to cash flow, indicating that shareholders are the main beneficiary of SK’s position of being in the right place at the right time.
• However, the shares weakened on the numbers while Samsung rallied, in a sign that the notoriously leaky Korean market had been expecting more from SK, galvanising concerns that market share is being ceded to Samsung.
• One can see this at Nvidia where it is sharing its position with Samsung, and I suspect that it will not end up with less than the 70% share in HBM4 as it had in HBM3.
• That being said, this issue is moot as demand is so strong that SK Hynix will be able to sell all it can make and more for at least this year and maybe next as well.
• This means that the estimates are likely to continue rising, making the memory makers look cheaper than ever.
• It is clear that memory is still a cycle, but the scale of the AI cycle is so great that we have not seen the end of the upswing yet.
• I bought Samsung for the recovery, I am staying for the ride.

Software: ServiceNow Q1 26 & IBM.

• ServiceNow, IBM and the rest of the sector fell last night as good results translated into AI SaaSpocalypse jitters, creating yet another opportunity for anyone who can look beyond the next weekend and who has a reasonably strong stomach.
• ServiceNow reported good results, beating expectations and slightly raising guidance, even though there have been a few sovereign contracts in the Middle East that slipped due to the Iran war.
• Q1 26 revenue / Adj-EPS were $3.77bn / $3.51, just ahead of consensus of $3.75bn / $3.48 despite the Middle Eastern delays, which took about 75bp of the YoY growth rate, which headlined at 19% YoY.
• The Middle East has also impacted Q2 26, where revenue guidance of $3.815bn – $3.820bn ($3.817bn) is 1.4% below the midpoint of expectations.
• However, organic full-year guidance was maintained, but the headline was increased as a result of the acquisitions that the company has made.
• This tiny (and temporary) problem was enough to send the shares down 14% in after-hours trading as a result of the market’s terror of the so-called AI-driven SaaSpocalyspe.
• IBM suffered the same fate after reporting a good Q1 26 just ahead of guidance and keeping its FY 26 forecast intact but it fell by 7% as the market continues to indiscriminately sell everything related to software.
• Both companies mounted a robust defence of their businesses on their conference calls, and in ServiceNow’s case, management was effective at pointing to hard evidence to counteract the scare stories.
• Excluding, the Armis cybersecurity acquisition, FY 2026 revenue growth guidance remains unchanged at 20.8% – 21.3% YoY, but it is rare for software companies to change FY guidance based on Q1, as it is always the weakest quarter and not a great indicator.
• Hence, I continue to think that ServiceNow is a beneficiary of AI rather than a victim, and so far, management has the receipts to prove it.
• It promises to bring even more receipts on May 4^th when it hosts its annual conference and financial analyst day in Las Vegas.
• The company is now trading on 20.8x 2026 PER, and with better than 20% growth for the foreseeable future, I think that this remains a great entry point.
• With the stock at $90 in after-hours trading and my position not fully invested, I am inclined to take my position to full strength when trading opens later today.