Samsung flags 19-fold jump in profit, but shares slump on jitters AI boom may stall

Highlights:

• Samsung posts third straight record quarterly operating profit, beating estimates
• AI demand continues to drive higher DRAM and NAND prices
• Earnings top expectations despite hefty chip worker bonus provisions, analysts say
• Shares fall as much as 10% following steep rise this year

Samsung Electronics on Tuesday flagged a 19-fold jump in second-quarter operating profit, surpassing its combined earnings over the past three years, but investors wiped more than $100 billion off its market value on concerns over the durability of the AI-driven chip boom.

The ever-expanding rollout of AI data centres has fuelled massive demand for memory chips and pushed chip prices to record highs, propelling a sharp turnaround for the world's largest memory chipmaker.

Samsung estimated April-June operating profit at 89.4 trillion won ($58.44 billion), beating an LSEG SmartEstimate of 87.3 trillion won, according to a regulatory filing. It reported a profit of 4.7 trillion won a year earlier. Revenue would likely rise 129% to 171 trillion won from a year earlier, it said.

The South Korean tech giant's shares still dropped as much as 10.1%, while rival SK Hynix's shares fell as much as 10.6%, dragging the benchmark KOSPI down 10.9%.

Analysts attributed the stock's weakness to some lofty market expectations and worries that the rollout of AI data centres may stall.

"Samsung's strong earnings were widely expected and had largely been priced in after its shares rallied ahead of the results," said Albert Yong, a managing partner at Petra Capital Management, which owns Samsung stock.

"Investors remain concerned about the sustainability of the AI boom and the risk of slower AI infrastructure spending by major US technology firms."

Slower chip price growth ahead?

Memory chip prices continued to climb during the quarter as AI spending broadened beyond high-bandwidth memory (HBM) into conventional DRAM and NAND products. Citi Research last week said 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 strong as expected.

"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," said Jing Jie Yu, an analyst at Morningstar.

Samsung's profit surged even as it set aside funds for sizeable bonuses to its semiconductor workers, as agreed in a wage deal in May linking their pay to operating profit.

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

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

Analysts said rapid growth in HBM production has tightened supply of conventional memory products used in smartphones, PCs and enterprise servers, further supporting prices.

"We're confident the earnings are going to come through," Raisah Rasid, global market strategist at JPMorgan Asset Management in Singapore, said, 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.

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

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

Risks on the horizon

Looking ahead, analysts said the biggest risk to the memory boom would be a slowdown in AI infrastructure investment.

Investors have also raised concern that the big technology companies will need to borrow heavily to fund AI infrastructure with uncertain returns, which could also dampen chip demand.

While memory has historically been characterised by boom-and-bust cycles, some analysts argue the current sustained growth is becoming more structural as AI demand outpaces the industry's ability to expand production. Building new memory fabrication plants takes years, limiting supply growth even as hyperscale companies continue to ramp up AI investment.

Samsung last week announced plans to invest 2,100 trillion won in South Korea through 2040, but said spending would be adjusted according to market conditions and business needs.