Chip Stock Bulls Count on Samsung to Soothe AI Trade Jitters

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Chip Stock Bulls Count on Samsung to Soothe AI Trade Jitters.

stock :: 6hrs ago :: source - bloomberg

By Sangmi Cha and Yoolim Lee

(Bloomberg) -- A wild ride for global chip stocks in recent weeks has left investors looking for fresh validation of the artificial intelligence trade. Samsung Electronics Co. may provide just that on Tuesday.

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The world's largest memory chipmaker is projected to report preliminary operating profit of 84.3 trillion won ($55.1 billion) for the quarter ended June, according to an average of analysts' estimates compiled by Bloomberg. This would mark an 18-fold jump from a year ago and dwarf the company's profit for all of 2025. Revenue is forecast to surge 127% to a record 169 trillion won.

While global semiconductor shares just wrapped up their best quarter on record, the rally hit turbulence in June as concerns over rising competition, potential overcapacity and the payoff from massive AI investments spurred sharp intermittent pullbacks. That has raised the stakes for Samsung's results, with lofty expectations leaving little room for disappointment.

The earnings land at the "exact moment the market is questioning both sides of the memory trade, with Meta's compute plans raising doubts about demand and Apple's talks with Chinese suppliers hinting at cracks in the supply squeeze," said Dave Mazza, chief executive officer of Roundhill Financial. "A print near the consensus settles the argument in Samsung's favor."

Booming demand for the high-performance memory chips needed to train and run large AI systems such as Anthropic PBC's Claude and OpenAI's ChatGPT has triggered a global supply crunch. The squeeze has fueled a sharp rise in prices, boosting margins at chipmakers like Samsung and its local peer SK Hynix Inc., while also prompting AI firms to diversify their supplies. Average DRAM selling prices climbed more than 40% in the April-June quarter from the previous three months and NAND prices jumped more than 50%, according to HSBC Holdings Plc.

Samsung Group and SK Group plan to build two chipmaking plants apiece in the southwest for a total of 800 trillion won, to rapidly expand capacity. Meanwhile, Anthropic is in talks with Samsung to be a manufacturing partner for a custom AI chip, the Information said late last week, citing people familiar with the plan.

The preliminary earnings will be a "key catalyst" for global chip stocks, offering a read on metrics like high-bandwidth memory demand and pricing, said Jung In Yun, chief executive officer at Fibonacci Asset Management Global.

Samsung's shares doubled last quarter and are now up more than 155% this year. However, the stock lost nearly 9% in five sessions through Friday to cap its worst week since the end of March as global chip shares swung wildly.

The 30-day volatility for a Bloomberg gauge of the top 20 semiconductor stocks has surged to the highest since 2020. That's despite blockbuster results from Micron Technology Inc., whose quarterly sales forecast crushed Wall Street estimates.

Samsung's detailed results are expected later in July. To be sure, lofty earnings expectations after a torrid rally leave little margin for error.

"Memory stocks have traditionally peaked a few months before memory prices hit their cyclical top," said Jian Shi Cortesi, a fund manager at Gam Investment Management. "A flattening or deceleration in the rate of memory price hikes could signal downside risks for memory names."

Still, sell-side analysts remain bullish on Samsung's stock, with the average price target among brokers tracked by Bloomberg implying another 52% upside over the next 12 months. Citigroup Inc. last week raised its target to 530,000 won from 460,000 won. That's 71% higher than Friday's close.

Valuations also remain a key draw for investors. Explosive growth in profits means Samsung's stock is still trading at just 5.7 times its 12-month forward earnings, near the cheapest ever in data compiled by Bloomberg going back to 2007. That's versus a multiple of 7 for Micron, and nearly 24 for the broader Philadelphia Semiconductor Index.

"While there has been market concern about excess AI computing capacity sparked by Meta, we view the recent share price pullback as a technical correction," Citigroup analysts led by Peter Lee wrote in a July 2 note. "We believe memory fundamentals are intact and server DRAM pricing has been outperforming on strong CPU demand."

--With assistance from Jeanny Yu.