Samsung likely to post 18-times jump in profit on surging AI demand for memory

[SEOUL] Samsung Electronics is likely to estimate that its operating profit jumped about 18-times to another record high from a year earlier in the second quarter, as artificial intelligence growth continues to strain memory supply and push chip prices higher.

On Tuesday (Jul 7), the world’s largest memory chipmaker by sales is likely to flag an operating profit of 86 trillion won (S$72 billion) for the April to June quarter, according to an LSEG SmartEstimate based on forecasts from 30 analysts, weighted towards those with the best track records.

Up from 4.7 trillion won a year earlier, this would mark a third consecutive quarter of record operating profit for Samsung, reflecting a prolonged memory shortage, as booming demand for AI inference infrastructure continues to outpace supply growth from global memory manufacturers.

Analysts expect the memory market to remain undersupplied at least till next year.

The robust growth has been driven not only by high-bandwidth memory (HBM), but also by stronger demand for conventional DRAM and NAND products as AI applications, particularly agentic AI, expand into a broader range of computing workloads.

Unlike earlier AI applications focused mainly on training large models, agentic AI systems perform more complex, multi-step tasks that require additional memory for server processors and greater storage capacity to retain and retrieve data during inference, analysts said.

Samsung is a key supplier of memory chips to major technology companies including Nvidia, Google and Apple.

Citi Research on Thursday said that average selling prices for DRAM and NAND rose 44 per cent and 53 per cent quarter-on-quarter, respectively, in the second quarter.

The ongoing memory shortage has fuelled a massive rally in memory chipmakers’ shares, with Samsung Electronics, SK Hynix and Micron soaring 158 per cent, 273 per cent and 242 per cent, respectively, this year, driving all three companies’ market valuations above US$1 trillion.

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Chip workers’ bonuses could defy forecasts

Despite the strong operating backdrop, analysts cautioned that the second-quarter earnings could fall short of consensus if Samsung books a larger-than-expected provision for employee bonuses during the quarter.

In late May, Samsung averted a large-scale strike, reaching a wage deal that allocates 10.5 per cent of the semiconductor division’s operating profit to special bonuses for chip employees.

Some analysts estimate Samsung’s cumulative bonus provisions could exceed 40 trillion won, making the timing of accounting recognition a key variable for second-quarter earnings.

Samsung will announce detailed earnings later this month.

Risks to watch

Looking ahead, analysts see potential delays to AI infrastructure investment as the biggest risk to the current memory boom.

JPMorgan said in a recent note that while investors broadly agreed memory supply-demand fundamentals remained tight, many questioned whether AI memory’s rapidly rising share of cloud service providers’ capital expenditure – estimated at 52 per cent this year and expected to exceed 70 per cent next year – would be sustainable.

Any drop in AI spending could come back to haunt Samsung and SK Hynix, which last week pledged to invest 3,200 trillion won (S$2.7 trillion) to expand chip capacity in South Korea. Samsung expects to make that investment between 2026 and 2040, while SK Hynix gave no detailed timeframe.

Investors are seeking clearer evidence that breakthroughs in AI services will translate into faster growth in cloud computing and related AI revenues, helping justify memory’s expanding share of AI infrastructure spending, JPMorgan said.

The world’s top memory chipmaker by sales said in April that it has signed multi-year binding contracts with customers hoping to lock in supplies, without disclosing identities or terms.

Nomura said in a recent report that it expects commodity DRAM prices to rise 24 per cent quarter-on-quarter and NAND prices to increase 25 per cent in the July to September quarter, supported by higher demand for consumer memory products and chips for traditional and AI data centres.

Meanwhile, Samsung’s mobile business faces mounting cost pressures as rising memory prices have squeezed its margins, with higher component costs more than offsetting recent handset price increases.

Although Samsung has already raised smartphone prices, analysts said that further price increases may be needed in the second half of the year. Rival Apple raised prices of iPads and MacBooks last month. REUTERS