Profits to Surge 15-Fold on Demand for AI Chips: Samsung Electronics Stock Hits New Yearly High

Samsung shares reached their highest level in over three years, driven by strong AI demand and better-than-expected financial guidance. The stock rose by as much as 2.96% on Friday, trading at 87,100 Korean won ($63.06), up from 84,600 won on Thursday. Samsung projected an operating profit of around 10.4 trillion won for the April to June quarter, marking a 1,452.2% increase from 670 billion won a year earlier, and surpassing the LSEG estimate of 8.51 trillion won.

Samsung Electronics anticipates a significant surge in second-quarter operating profit, driven by the recovery of memory chip prices and strong demand for AI-related products. The company forecasts a more than 15-fold increase in operating profit, estimating it to reach 10.4 trillion won ($7.5 billion), a 1,452% rise from the previous year's figures. This surge is attributed to booming data centers and AI development, which have spurred demand for advanced D-RAM chips, including high-bandwidth memory.

The projected profit far exceeds analysts' expectations of 8.8 trillion won, as per LSEG SmartEstimates. Additionally, Samsung expects a 23% increase in sales to 74 trillion won compared to the same period last year. Analysts estimate that Samsung's chip division alone posted an operating profit of up to 5 trillion won, a stark contrast to the 4.4 trillion won loss from the previous year.

According to SK Kim, executive director of Daiwa Capital Markets, the qualification process for Samsung's HBM chips for Nvidia's AI processors has been delayed.

HBM chips are pivotal for AI advancements, and the burgeoning demand has significantly benefited leading memory chipmakers like Samsung Electronics and SK Hynix. However, a May report from Reuters indicated that Samsung has not yet qualified as a supplier for Nvidia's AI processors. Samsung has contested this, asserting that testing with several partners for HBM supply remains "on track."

Despite the delays in HBM production, Samsung's robust market position and capacity have allowed it to capitalize on higher average selling prices (ASP) for its memory products, thus driving substantial profit growth. This dual scenario of production delays and financial gains underscores the complexities in the tech and semiconductor markets, where supply chain issues can coexist with strong market performance. Many analysts expect Samsung to start supplying HBM chips to Nvidia in the second half of this year, but some remain sceptical about the company's long-term business prospects.