Samsung's profit increases 19 times; shares fall on fears about AI

Samsung Electronics announced this Tuesday (7) a 19-fold increase in operating profit for the second quarter, surpassing its combined profits for the last three years; However, investors have written more than $100 billion off the company's market value due to concerns about the sustainability of the AI-driven chip boom.

The increasing deployment of AI data centers has fueled massive demand for memory chips and driven chip prices to record levels, driving a sharp turnaround for the world's largest memory chip maker.

Samsung estimated April-June operating profit at 89.4 trillion won ($58.44 billion), beating LSEG SmartEstimate's estimate of 87.3 trillion won, according to a regulatory filing.

In the previous year, the company had recorded a profit of 4.7 trillion won. Revenue would likely increase 129% to 171 trillion won from a year earlier, the company said.

Shares of the South Korean tech giant still fell as much as 10.1%, while shares of rival SK Hynix fell as much as 10.6%, dragging the benchmark KOSPI index down 10.9%.

Analysts attributed the share decline to heightened market expectations and concerns that the rollout of AI data centers could be delayed.

"Samsung's solid financial results were widely expected and had already largely been priced in after the stock surge ahead of the earnings release," said Albert Yong, managing partner at Petra Capital Management, which holds Samsung shares.

"Investors remain concerned about the sustainability of the AI boom and the risk of a slowdown in AI infrastructure spending by major U.S. technology companies."

Slower growth in spot chip prices?

Memory chip prices continued to rise during the quarter as AI spending expanded beyond high-bandwidth memory (HBM) to conventional DRAM and NAND products.

Citi Research reported last week that average selling prices for DRAM and NAND rose 44% and 53% quarter-on-quarter, respectively, in the second quarter.

However, Morningstar analyst Jing Jie Yu said Samsung's revenue estimate was not as robust as expected.

"We believe the slight deviation in revenue was driven largely by more moderate-than-expected increases in DRAM prices, which likely spooked investors, who are increasingly pricing in the structural strength of memory prices," said Morningstar analyst Jing Jie Yu.

Samsung's profit soared even as the company set aside funds for sizable bonuses for its semiconductor employees, as agreed in a May salary agreement that ties their compensation to operating profit.

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"Samsung reported better-than-expected profits despite bonus-related provisions as memory prices rose sharply," said Lee Min-hee, analyst at BNK Investment & Securities.

Without these provisions, its operating profit would likely have exceeded 100 trillion won, analysts said.

Analysts said rapid growth in HBM production has reduced the supply of conventional memory products used in smartphones, PCs and corporate servers, which has further contributed to rising prices.

"We are confident that earnings will be achieved," said Raisah Rasid, global market strategist at JPMorgan Asset Management in Singapore, but added that "we will see a moderation" in returns, with the triple-digit gains from the first half of the year unlikely to be repeated.

While Samsung's memory business is expected to post another quarter of solid profits, analysts said losses in its foundry and logic chip (LSI) businesses are likely to widen as bonus expenses are allocated across the semiconductor division.

Samsung plans to announce detailed results on July 30, including a breakdown of earnings from each of its business divisions.

Source: CNN