Samsung Eyes 18-Fold Profit Jump On AI Memory Squeeze

Samsung Electronics is expected to project an 18-fold surge in its second-quarter operating earnings to 8.6 trillion won ($56.35 billion) on Tuesday, according to a Reuters report. The projection is based on an LSEG SmartEstimate.

It marks a third straight quarter of unprecedented operating earnings for the South Korean manufacturer, up from 4.7 trillion won a year earlier. The growth is driven by a prolonged memory shortage. Surging demand for artificial intelligence inference hardware continues to exceed production by global memory manufacturers.

Samsung remains a key supplier of memory chips to major technology companies, including Nvidia, Google, and Apple. The upcoming earnings report will reflect how AI expansion is straining global supply.

Agentic AI Drives Demand

Analysts expect the memory market to remain undersupplied at least through next year, driven by strong demand for high-bandwidth memory (HBM), conventional DRAM, and NAND products.

Agentic AI systems are accelerating this trend. These systems execute complicated, sequential operations that demand additional server processor memory and expanded storage space during inference, according to the report.

Average selling prices for DRAM and NAND rose 44% and 53%, respectively, quarter on quarter in the second quarter, Citi Research reported. The memory shortage has driven massive stock rallies this year. Shares of Samsung, SK Hynix, and Micron have soared 158%, 273%, and 242%, respectively, pushing all three valuations above $1 trillion.

Bonus Provisions Impact Earnings

The report cautions that second-quarter earnings could fall short of consensus if Samsung books a larger-than-expected provision for employee bonuses. A late-May wage deal successfully averted a strike. The agreement earmarks 10.5% of the chip unit's operating earnings for employee payouts.

Some analysts estimate cumulative bonus provisions could exceed 40 trillion won. This makes the timing of the accounting recognition a key variable before Samsung announces detailed earnings later this month.

Capex Sustainability And Risks

AI memory's share of cloud infrastructure spending is projected to reach 52% in the current year and surpass 70% in the following year, JPMorgan reported in a recent note. This metric raises questions about long-term sustainability, with investors seeking clearer evidence that AI breakthroughs will translate into faster cloud computing growth.

Samsung and SK Hynix pledged to invest 3,200 trillion won ($2.07 trillion) to expand South Korean chip capacity. Samsung plans to make its investment between 2026 and 2040, while SK Hynix has not provided a detailed timeframe.

The world's top memory chipmaker signed multi-year binding contracts in April to lock in customer supplies, without disclosing the customers' identities or the terms.

Commodity DRAM prices will rise 24%, and NAND prices will rise 25% in the July-September quarter, supported by higher demand for consumer memory products and data centre chips, Nomura reported.

Mobile Margin Cost Pressures

Samsung's mobile business faces cost pressures as rising memory prices squeeze margins. Higher component costs are more than offsetting recent handset price increases.

Analysts added that further smartphone price increases may be needed in the second half of the year to counter these supply pressures.

Competitors are adjusting accordingly. Rival Apple raised prices for its iPads and MacBooks last month to navigate similar component cost challenges.