AI might rewrite Samsung's memory chip past

Samsung Electronics investors are used to the chip market's notoriously brutal boom-and-bust cycles. Artificial intelligence, though, might help ease future swings.

On Friday, the $420 billion tech conglomerate estimated, first-quarter operating profit to be 6.6 trillion won ($4.9 billion), a 10-fold surge from the same period a year ago. It's a welcome sign that the market for memory semiconductors used for data storage has finally bottomed out.

Consumer demand for electronics is recovering globally, while inventory levels have probably peaked; tech companies are starting to restock chip supplies again. After falling for much of the past two years, the average selling price for DRAM chips in the three months to March rose by more than a fifth from the previous quarter, according to Bernstein analysts.

Samsung, which generates the bulk of its operating profit from semiconductors, is forecast to more than double earnings this year, per analysts' estimates gathered by LSEG.

This upturn could be different. Semiconductors accounted for roughly a quarter of Samsung's top line last year. Mainstream memory ones are commoditised products, and vulnerable to cycles of excess inventory. Industry consolidation has helped, with Samsung, compatriot SK Hynix and US-based Micron Technology dominating the market today, but they were still caught out in the past two years.

That might gradually change: AI customers like Nvidia are asking for more specialised and customised storage chips including high-bandwidth memory, or HBM, and low latency DRAM. Demand for the former is expected to surge 60 percent annually in the mid-to-long term, SK Hynix reckons.

HBM revenue at Samsung could top $13 billion in 2025, or 13 percent of its total semiconductor sales, per JPMorgan analysts. Over the longer term, that could help cushion volatility. The company also looks well-positioned to grab share in the market for making logic chips used to process data.

Shares of Samsung are up 28 percent over the past six months and now trade on over 16 times forecast next 12-month earnings, LSEG data show, above its five-year average of 13 times. The AI boom can help rewrite Samsung's fortunes.