SK Hynix Inc.’s $24 billion rally this year is unraveling fast as the South Korean chipmaker finds itself embroiled in an intensifying US-China tech war.

A key supplier to both Apple Inc. and Nvidia Corp., SK Hynix has ridden this year’s artificial intelligence boom to surge more than 60% through the end of August. Bulls brushed aside the chipmaker’s dismal quarterly loss and warnings related to US restrictions on China, making the stock the most expensive among Asian chip giants.

Now, a shocking revelation that its products were found inside Huawei Technologies Co.’s Mate 60 Pro is prompting a reality check. While SK Hynix said it has suspended doing business with the Chinese phonemaker since US curbs, traders were nonetheless on edge, prompting a 6% slide since the news hit Thursday. The incident serves as a reminder of the geopolitical risks facing Korean firms that have heavy business operations in China.

The losses may just be the start of a steeper downturn for the stock. China’s plan to broaden its ban on the use of iPhones to state firms and government agencies bode ill for suppliers in the region, including SK Hynix. Sales data for new iPhones, typically released every fall, is a key barometer of global demand for electronics devices that run on chips.

“It looks like the share price is reflecting the fear of potential US sanctions,” after SK Hynix chips were found in the Huawei smartphone, said An Hyungjin, chief executive officer at Billionfold Asset Management Inc. The news on China’s iPhone usage ban “poured cold water and raised concerns that iPhone sales may be weak,” An said.

The latest developments have brought geopolitical risks to the fore for the stock. SK Hynix last year told analysts that the Biden administration’s escalating restrictions could force the closure or sale of a major plant in China in an “extreme situation.” The company gets about a third of its revenue from China, according to data compiled by Bloomberg.

Investors are also focusing on SK Hynix’s third-quarter earnings due October, which may be worse than market expectations, according to Roh Jongwon, chief investment officer at Infinity Investment Advisory Co. Continued weak demand for memory chips used in mobile devices called NAND will weigh on the stock price over the short term, he said.

The chipmaker’s sales in the three months through June came in at just half of its revenue a year ago, while operating losses extended for the third straight quarter.

“For its NAND business to improve, we need to see overall improvement in the industry and demand, which seems far-fetched,” Roh said.

To be sure, few expect SK Hynix to have supplied its chips to Huawei in defiance of the US ban. SK Hynix is “strictly abiding by the US government’s export restrictions” and has “started an investigation to find out more details,” the Korean firm said.

One possibility is that Huawei may be tapping a stockpile of components it accumulated before the full set of US trade curbs had been imposed on it. But the concern is that the US government may further tighten its scrutiny on foreign partners’ business dealings with China.

“SK Hynix would not have sold that chip directly to Huawei. It is more of leftover inventory in China,” said Tom Kang, an analyst at Counterpoint Technology Market Research. “There will probably be no actions against Hynix, but the US government might probe the distribution channels.”

SK Hynix is also prone to profit taking as its rally has exceeded those of the rivals in Asia. Samsung Electronics Co. and Taiwan Semiconductor Manufacturing Co. have advanced a little more than 20% this year through August, roughly a third of SK Hynix’s gains during the period. SK Hynix supplies high-end memory devices for Nvidia, a key driver of the outperformance.

“Because SK Hynix’s share rose a lot, investors probably want to lock in profit,” Roh at Infinity Investment said.

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--With assistance from Jeanny Yu, Jeffrey Hernandez and Yoolim Lee.