Samsung Electronics is anticipated to announce a massive surge in its second-quarter operating profit, with estimates reaching as high as 86 trillion won ($56.35 billion) for the April-June period, according to LSEG SmartEstimate. This would mark an approximately 18-fold increase from the 4.7 trillion won reported a year earlier and represent a third consecutive quarter of record operating profit. Other analysts, like those compiled by Bloomberg, project an operating profit of 84.3 trillion won ($55.1 billion), which would also be an 18-fold jump year-over-year. Revenue is expected to increase by 127% to a record 169 trillion won.
This robust growth is primarily driven by the booming demand and rising prices for memory chips, especially high-bandwidth memory (HBM), essential for artificial intelligence systems. Even conventional DRAM and NAND products are experiencing stronger demand as AI applications expand. Citi Research noted that average selling prices for DRAM and NAND rose by 44% and 53% quarter-on-quarter, respectively, in the second quarter. HSBC Holdings Plc’s data indicates DRAM selling prices climbed over 40% and NAND prices jumped over 50% in the April-June quarter.
Despite these stellar earnings expectations and an average analyst price target implying a 52% upside for Samsung stock over the next 12 months, the company's shares have faced recent volatility. After doubling last quarter and being up over 155% this year, the stock lost nearly 9% in five sessions through Friday, experiencing its worst week since late March. This pullback comes amid broader market concerns about excess AI computing capacity and potential overcapacity in the semiconductor sector. JPMorgan analysts noted that while memory supply-demand fundamentals remain tight, some investors question the sustainability of AI memory's rapidly rising share of cloud service providers' capital expenditure, which is estimated at 52% this year and expected to exceed 70% next year.
Analyst sentiment remains largely bullish, with Citigroup Inc. recently raising its price target for Samsung to 530,000 won from 460,000 won, a 71% increase from Friday's close. Valuations are also attractive, with Samsung's stock trading at just 5.7 times its 12-month forward earnings, near an all-time low compared to Micron's 7 and the Philadelphia Semiconductor Index's nearly 24. However, some analysts caution that actual earnings could fall short if Samsung books a larger-than-expected provision for employee bonuses, following a wage deal allocating 10.5% of the semiconductor division's operating profit to special bonuses. Meritz Securities estimated these bonus provisions at 5.6 trillion won for Q1 and 13.7 trillion won for Q2, totaling 19.3 trillion won.
Looking ahead, analysts are monitoring potential delays in AI infrastructure investment as the main risk to the memory boom. Nomura expects commodity DRAM prices to rise 24% quarter-on-quarter and NAND prices to increase 25% in the July-September quarter, supported by higher demand from consumer products and data centers. The preliminary earnings announcement on Tuesday will be a crucial indicator for global chip stocks, offering insights into high-bandwidth memory demand and pricing. Investors are seeking validation for the AI trade, and Samsung's results are expected to provide clarity."
