Samsung Electronics experienced a significant surge in its stock value, reaching a three-year high, driven by an optimistic forecast for its second-quarter profits. The South Korean tech giant announced a projected 15-fold increase in operating profit compared to the same period last year, attributing the growth to the burgeoning demand for advanced computer chips fueled by the global artificial intelligence (AI) boom.
On Friday, Samsung’s shares climbed 3%, closing at 87,100 Korean won per share, the highest since early January 2021. This jump follows the company’s profit guidance for the second quarter of 2024, projecting an operating profit of approximately 10.4 trillion won (around $7.5 billion), a substantial rise from 670 billion won ($500 million) a year earlier. This forecast also comfortably surpasses the first-quarter profit of 6.61 trillion won ($4.8 billion).
Samsung anticipates its second-quarter sales revenue to reach 60 trillion won ($43.5 billion), reflecting nearly a 25% increase from the same period last year. The company’s impressive performance is largely credited to its semiconductor unit, one of the world’s largest manufacturers of computer chips. The AI boom has led to skyrocketing prices for high-end chips essential for powering AI products and data centers.
The increased demand for generative AI, which drives tools like ChatGPT, Gemini, Claude, and Copilot, has significantly benefited Samsung. The company has leveraged this AI optimism to recover from the post-COVID-19 pandemic slump, experiencing a resurgence in the memory chip market. Despite delays in the production of high-bandwidth memory (HBM) chips, essential for AI chipsets, Samsung continues to benefit from high memory prices and its leading market position.
In recent years, Samsung has faced challenges due to fluctuating demand for memory chips and consumer electronics. However, the growing interest in AI applications has rejuvenated the market. The demand for AI-related technologies, which require advanced memory chips, has created new revenue streams for the tech giant. Samsung’s Galaxy S24 Ultra smartphone, equipped with AI-driven features for photo editing and online item searches, exemplifies the company’s commitment to integrating AI into its product lineup.
Analysts attribute Samsung’s earnings surprise to the robust recovery in memory chip prices, which have rebounded strongly on the back of AI optimism. While the company has encountered delays in qualifying its HBM chips for use in Nvidia’s AI processors, it has managed to maximize profits through its dominant market share and higher average selling prices. Samsung refuted reports of qualification delays, stating that tests with several partners for HBM supply are on track.
The AI boom has not only propelled Samsung but also elevated other chip and AI companies. Nvidia, a U.S. chipmaker, has seen its market capitalization soar, making it one of the world’s most valuable companies. Nvidia’s transformation from a niche hardware manufacturer primarily serving gamers to a key player in the AI industry underscores the extensive impact of AI demand on the tech sector.
As Samsung prepares to release a detailed earnings report for the second quarter at the end of July, investors and industry analysts eagerly await further insights into the company’s financial performance and strategic direction. The report is expected to shed light on how Samsung plans to navigate the rapidly evolving AI market and maintain its competitive edge in the semiconductor industry.
The global AI boom presents both opportunities and challenges for Samsung. While the demand for advanced chips offers significant revenue potential, the company must also address the competitive pressures and technological advancements within the industry. Samsung’s ability to innovate and adapt to the dynamic market landscape will be crucial in sustaining its growth trajectory and capitalizing on the AI-driven market dynamics.