Global credit rating agency Moody's has upgraded SK Hynix's credit rating to the A tier for the first time, reflecting improved earnings and cash generation driven by the artificial intelligence (AI) memory boom.

According to the credit rating industry on the 4th, Moody's raised SK Hynix's long-term issuer rating and senior unsecured debt rating by one notch from Baa1 to A3 the previous day (the 3rd).

The rating outlook was maintained as stable.

This marks the first time SK Hynix has received an A-tier credit rating from Moody's since it was incorporated into SK Group in 2012 and adopted its current name.

It is also the first A-tier rating among the three major global credit rating agencies.

Standard & Poor's (S&P) and Fitch both currently assign a BBB+ rating to SK Hynix.

However, S&P has given SK Hynix a positive outlook, while Fitch maintains a stable outlook.

Explaining the background behind the upgrade, Moody's stated, "SK Hynix will maintain high profitability and cash generation over the next 12 to 18 months, further strengthening its financial structure and financial flexibility," adding, "This will provide a substantial buffer to cope with potential future downturns in the semiconductor industry."

The agency projected that robust demand for advanced memory products, such as high-bandwidth memory (HBM) and server DRAM, will continue as hyperscale cloud providers persist with their AI infrastructure investments.

In addition, Moody's anticipated that as semiconductor companies reallocate wafer input and production capacity toward AI-related memory products, the growth in legacy memory supply will remain limited, creating a favorable environment for prices across the broader memory market.

Consequently, Moody's expects SK Hynix's adjusted EBITDA to increase from about 65 trillion won last year to approximately 274 trillion won this year, and further to about 374 trillion won next year.

Driven by this earnings improvement, operating cash flow is expected to significantly exceed capital expenditures and shareholder returns, further expanding SK Hynix's net cash position over the next 12 to 18 months.

According to Moody's estimates, SK Hynix's adjusted net cash increased from about 10 trillion won at the end of last year to approximately 67 trillion won at the end of the first half of this year.

SK Hynix has previously stated a goal of maintaining net cash of over 100 trillion won.

Moody's evaluated that "a large net cash position provides substantial financial flexibility to respond to growing investment demands and a buffer to withstand the high cyclicality of the memory industry."

It also diagnosed that SK Hynix's strong competitiveness in the global memory semiconductor industry, including securing a leading position in the AI HBM market, along with its robust financial structure and conservative financial policies, underpins its credit profile.

However, Moody's pointed out risk factors such as the high cyclicality of the memory semiconductor industry, intensifying competition including from Chinese memory makers, and the need for massive capital expenditures to maintain competitiveness.

The agency added that further upgrades are possible if the company reduces earnings volatility and maintains sufficient net cash, whereas ratings could be downgraded if financial health or market position is impaired due to deteriorating profitability, aggressive investments, shareholder returns, or delays in technological transitions.

(Photo: Yonhap News)