Samsung set for highest Q3 profit in three years as AI demand lifts chip prices

Samsung Electronics is forecast to achieve its highest Q3 operating profit since 2022, estimated at 10.1 trillion won, primarily driven by a rebound in conventional memory chip prices fueled by robust server demand and inventory restocking. Despite facing headwinds from delayed high-bandwidth memory (HBM) supply to Nvidia and China restrictions, strategic partnerships with OpenAI and a significant foundry deal with Tesla are poised to enhance future growth and market sentiment, though geopolitical risks remain.

Analysis

Samsung Electronics is projected to report a robust Q3 operating profit of 10.1 trillion won, a 10% year-over-year increase and its highest since 2022, primarily driven by a significant recovery in conventional memory chip prices. This rebound is attributed to strong server demand and customer inventory rebuilding, with DRAM chip prices notably jumping 171.8% in the quarter.

Despite this strength, Samsung faced headwinds from delayed supply of its latest 12-layer HBM3E chips to Nvidia, allowing rivals like SK Hynix and Micron to capture more AI-driven demand. Geopolitical factors, including U.S. restrictions on advanced chip sales to China, also constrained growth and present ongoing risks.

However, market sentiment is improving due to strategic partnerships and significant deals. A chip supply agreement with Tesla in July led to a 43% rise in Samsung shares, while collaborations with OpenAI for the Stargate project and an AI chip deal between OpenAI and AMD are expected to bolster its HBM business. The $16.5 billion foundry deal with Tesla also signals potential for increased contract manufacturing orders.

While these AI-driven supply deals provide a positive outlook, analysts caution about remaining uncertainties. These include potential U.S. tariffs on chips and China's tightened export controls on rare earth materials, which could impact future supply chains and profitability.

Key Decisions for Investors

• Monitor Samsung's official Q3 earnings release for confirmation of the 10.1 trillion won operating profit and detailed segment performance, particularly the HBM division's progress.
• Evaluate the long-term implications of Samsung's strategic partnerships with Tesla and OpenAI, as these could significantly de-risk HBM supply delays and boost its foundry business.
• Assess geopolitical developments, specifically U.S. tariffs and China's export controls, as these present material risks to Samsung's global supply chain and market access.
• Consider the competitive landscape in HBM, noting Micron's strong demand outlook, and how Samsung plans to regain market share from rivals like SK Hynix.