Samsung Q1 Profit Soars 932.8%, Hits $52.3B on AI, Chips

Key Takeaway

• Samsung Electronics' operating profit soared 932.8% to $52.3 billion in Q1, driven by AI optimism and a rebound in memory chip prices.
• The company benefits from increased demand for DRAM and NAND chips amid the AI boom, with Citi reiterating a "buy" rating.
• Despite receiving up to $6.4 billion from the Biden administration for Texas expansion, Samsung faces tough competition in advanced semiconductor manufacturing.

Surging Profits Amid AI Optimism

Samsung Electronics announced a staggering 932.8% jump in operating profit for the first quarter, significantly beating expectations with figures buoyed by a rebound in memory chip prices driven by optimism around artificial intelligence (AI). The company reported operating profits of 6.61 trillion Korean won (about $52.3 billion), against the 5.94 trillion Korean won estimated by LSEG. This marks a substantial increase from the previous year, with revenue also seeing a 12.81% jump to 71.92 trillion Korean won. Samsung attributed this performance to strong sales of its flagship Galaxy S24 smartphones and higher prices for memory semiconductors. The company had anticipated this surge, forecasting operating profits of 6.6 trillion Korean won and revenue of 71 trillion won earlier in the month.

Memory Chips and AI Demand

Samsung, the world's largest manufacturer of dynamic random-access memory (DRAM) chips, is witnessing a significant demand for memory chips as AI models become more complex and require higher capacities and faster speeds. SK Kim of Daiwa Capital Markets highlighted the earnings surprise was likely due to a memory price hike on an AI-driven strong upturn cycle. Furthermore, an earthquake in Taiwan earlier in April temporarily impacted the production of competitors TSMC and Micron, potentially contributing to a further increase in memory chip prices. Citi analysts have also noted the potential for Samsung's NAND flash memory business, essential for AI computing, reiterating a "buy" rating on the firm with a target price indicating a 56% upside.

Navigating Competitive Waters

The global race to manufacture advanced semiconductors is heating up, with many countries, including the United States, investing heavily in domestic chip production capabilities. The Biden administration recently agreed to grant Samsung up to $6.4 billion of funding to expand chip manufacturing in Texas. However, Samsung faces stiff competition from other global players, including Japan's Rapidus Corporation, which received substantial subsidies to produce 2-nanometer chips from 2027. Concerns are growing that Samsung could lose its leading position to rivals like SK Hynix, which has recently advanced in producing high bandwidth memory chips used in AI chipsets.

Street Views

• SK Kim, Daiwa Capital Markets (Bullish on Samsung):

  "We assume the earnings surprise was driven by higher memory price hike on AI-driven strong upturn cycle. We anticipate the company will guide for positive memory market outlook and emphasize its readiness in AI era including HBM (12H HBM3E, HBM4) and foundry/packaging solution."

• Citi Analysts (Bullish on Samsung's NAND flash memory business):

  "We expect storage (HDD) to be the next bottleneck in AI computing, especially in AI training, and foresee Samsung Electronics to be one of the key beneficiaries of SSD demand momentum for AI training."

• Mehdi Hosseini, Susquehanna International Group (Neutral on Samsung):

  "Now, Samsung is only 'benefiting from the cycle recovery.'"