Samsung Elec Q2 profit likely to drop 39% on weak AI chip sales

Samsung Electronics is projected to report a 39% plunge in second-quarter operating profit to 6.3 trillion won, marking its lowest in six quarters and fourth consecutive decline, primarily due to delays in supplying advanced high-bandwidth memory (HBM) chips to AI leader Nvidia. This underperformance is exacerbated by slow certification of its HBM3E 12-high chips and persistent China sales restrictions, allowing rivals like SK Hynix and Micron to gain a competitive edge in the robust AI memory market. Furthermore, the company faces broader uncertainties from U.S. trade policies, including potential tariffs and restrictions on technology access for its China plants, despite solid smartphone sales.

Analysis

Samsung Electronics is facing a significant downturn, with forecasts pointing to a 39% year-over-year plunge in second-quarter operating profit to 6.3 trillion won, its lowest in six quarters and the fourth consecutive quarterly decline. This underperformance is primarily driven by the company's inability to capitalize on the booming artificial intelligence market, specifically due to delays in getting its advanced HBM3E 12-high memory chips certified by AI market leader Nvidia. This lag has allowed competitors like SK Hynix and Micron to capture robust demand, positioning Samsung as the worst-performing major memory chip stock this year, with its 19% gain significantly underperforming the KOSPI's 27.3% rise. Compounding these issues are persistent headwinds from U.S. restrictions on advanced chip sales to China and broader geopolitical uncertainty, including potential U.S. tariffs on smartphones and stricter technology controls for its China-based facilities. While the company has initiated HBM chip supply to AMD and smartphone sales remain solid, these factors are insufficient to offset the material impact of the lost opportunity in the high-margin HBM segment tied to Nvidia.

Key Decisions for Investors

• Investors should closely monitor any announcements regarding the qualification status of Samsung's HBM3E chips with Nvidia, as successful certification is the most critical near-term catalyst for the stock.
• Given Samsung's lag, a relative value assessment against peers like SK Hynix and Micron is warranted, as these competitors are currently better positioned to benefit from the AI-driven memory cycle.
• Factor in heightened geopolitical risk from U.S.-China trade policies, as potential tariffs and export controls could further pressure both the chip and smartphone divisions.
• While the smartphone division offers some stability, the company's overall recovery hinges on regaining its footing in the high-bandwidth memory market, making the chip division's progress the primary determinant of future performance.