Samsung Electronics has reported one of its biggest profit jumps ever. The South Korean tech giant said its operating profit for the April-June quarter is expected to reach 89.4 trillion won ($58.4 billion), almost 19 times higher than the same period last year, according to Samsung’s earnings guidance.
The company earned more profit in just one quarter than it made over the last three years combined, according to Reuters. This shows how strong the current AI-driven chip boom has become. Samsung’s revenue also jumped sharply. The company expects quarterly sales of 171 trillion won, up about 129% from a year ago.
HOW AI CHIPS BOOSTED SAMSUNG PROFITS
This is Samsung’s third straight record quarterly operating profit, showing that its business has continued to grow rapidly. The biggest reason behind the profit surge is artificial intelligence (AI). Companies around the world are buying huge numbers of memory chips to build AI systems and data centres, according to the BBC.
Samsung is one of the world’s biggest semiconductor makers. It manufactures memory chips used by major technology companies, including Nvidia and Google, along with chips used in its own electronic devices. The AI boom has created more demand than supply for memory chips. Because there are not enough chips available, companies like Samsung have been able to charge much higher prices.
Industry analyst Marc Einstein from Counterpoint Research described Samsung’s results as one of the strongest ever. He said the earnings were close to Nvidia’s recent record performance. “This has everything to do with the AI boom as memory companies continue to ride a tidal wave driven by limited supply and unprecedented demand”, said Einstein, as per CNBC.
WHY MEMORY CHIP PRICES ARE RISING
Samsung has increased the prices of its memory chips because supplies remain tight. Research firm IDC said AI demand has changed the memory chip industry completely. Data centres building AI systems are buying chips at levels never seen before. Tech devices researcher Bryan Ma of IDC said, “We do expect supplies to be tight through next year given the unabated demand from AI data centres”, via BBC.
The AI boom is not just helping advanced AI chips. Reuters reported that demand has also pushed up prices for regular DRAM and NAND memory chips, which are used in smartphones, laptops and servers. Citi Research estimated that average DRAM prices rose 44% and NAND prices rose 53% during the second quarter, according to Reuters.
Samsung also benefited because production of high-bandwidth memory (HBM) chips tightened supplies of regular memory chips, making those products more expensive as well. Even after setting aside money for employee bonuses under a wage agreement, Samsung still posted record profits.
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SAMSUNG STOCKS DECLINE DESPITE RECORD PROFITS
Analysts said Samsung’s operating profit could have crossed 100 trillion won if those bonus expenses had not been included. Despite these massive profits, Samsung’s stock price fell sharply. Shares dropped nearly 7% in Seoul, while Reuters reported they fell as much as 10.1% during trading before closing lower. Investors were not disappointed because Samsung performed badly. They were disappointed because many expected profits to be even higher, according to the BBC.
Albert Yong of Petra Capital Management explained why investors sold the stock. He said, “Samsung’s strong earnings were widely expected and had largely been priced in after its shares rallied ahead of the results.” “Investors remain concerned about the sustainability of the AI boom and the risk of slower AI infrastructure spending by major U.S. technology firms”, Yong added via BBC.
WHY INVESTORS ARE WORRIED ABOUT AI SPENDING
Many investors are now worried that big American technology companies could reduce spending on AI infrastructure in the future. Companies like Meta, Microsoft, Amazon and Alphabet may need to borrow heavily to keep funding expensive AI projects, raising concerns that future chip demand could slow.
Morgan Stanley warned that semiconductor stocks could remain under pressure because investors expect “more capex discipline” from large AI companies. Morgan Stanley said, “The Semis trade finally started to lose momentum after a historic run since the end of March”, as per BBC.
Morningstar analyst Jing Jie Yu also said Samsung’s revenue was slightly weaker than investors had expected. Jing Jie Yu said, “We believe the slight revenue miss was largely driven by more moderate DRAM price hikes than expected, which likely spooked investors who are increasingly pricing in structural strength in memory prices.”
WHAT SAMSUNG EARNINGS SAY ABOUT AI STOCKS
Bloomberg said investors have entered a “beat-and-raise” mindset. That means simply beating earnings estimates is no longer enough. Investors now expect companies to perform even better every quarter. Joachim Klement of Panmure Liberum said via BBC, “The market reaction to Samsung shows that investors have now got into a beat-and-raise mindset.”
Bloomberg also said semiconductor stocks are facing fresh pressure because many investors are questioning whether hundreds of billions of dollars in AI spending can continue forever. Samsung’s strong earnings caused shares of other chipmakers like Micron and Sandisk to fall in premarket trading as investors reassessed the entire AI sector.
Even Nvidia experienced something similar earlier this year. After reporting record earnings, Nvidia’s stock still fell because investors worried about growing competition. Samsung’s results suggest that AI demand is still extremely strong today. Many companies are continuing to buy huge numbers of memory chips for AI servers and data centres. However, the market is already looking beyond today’s profits. Investors want to know whether this AI boom can continue for several more years.
JPMorgan Asset Management believes Samsung’s earnings will remain strong but expects growth to slow. “We’re confident the earnings are going to come through,” but added that “we’re going to see a moderation” in returns, with the triple-digit gains of the first half of the year unlikely to be replicated, Raisah Rasid, JPMorgan Asset Management, as per Reuters report.
WHAT SAMSUNG PROFITS MEAN FOR CHIPMAKERS
Samsung’s detailed financial results will be released on July 30, when the company will provide a full breakdown of earnings across its different business divisions. Samsung and rival SK Hynix are both investing hundreds of billions of dollars to expand chip production, showing they expect AI demand to stay strong for years.
South Korea has also announced plans worth at least $880 billion to support chip manufacturing projects led by Samsung and SK Hynix. Japan, China and Taiwan are also investing heavily in semiconductor factories, as countries race to meet growing global demand for AI chips, according to BBC.
Samsung’s record profits are a positive sign for the global chip industry. They show that AI demand remains extremely strong and memory chip makers are still making huge profits. At the same time, Samsung’s falling share price is a warning for the entire technology sector. Investors now want proof that the AI spending boom can continue for years instead of slowing down.
The overall message for other chipmakers is clear: companies can still report record profits because of AI demand, but investors are becoming much more cautious and are no longer rewarding strong earnings alone.
