Strong results were widely discounted and failed to boost Samsung's ailing share price
Samsung Electronics announced a record quarterly operating profit Thursday, but, despite the robust performance, a warm response from investors initially and an opening rally, the shares still closed down 0.72% on the day.
Bearish sentiment in the semiconductor sector is such that investors currently are a tough audience to please.
Part of the problem with the lukewarm reaction to the results was that (KR:005930) Samsung had already issued preliminary results at the start of July, so to a large extent the strong operations were largely discounted. SK Hynix (KR:000660) met with a similar fate after it reported Wednesday.
There are other problems, however. First is the intense deleveraging of speculative retail positions in the Korean stock market as a whole that has been ongoing since the market peaked in the third week of June.
The second, probably bigger, challenge for shareholders at present is the skepticism shared by investors about the sustainability of the AI capex cycle that has powered the likes of Samsung and SK Hynix to unprecedented profitability and steepling share price rallies.
Samsung revealed sales of KRW 171.5 trillion ($119 billion), up 130% year-over-year and in line with the consensus, according to FactSet, while operating profit was KRW 89.4 trillion and net income KRW 71.6 trillion.
Among the positives highlighted by Samsung in the earnings commentary were the strength of AI server demand, which boosted sales of its dynamic random access memory $(DRAM)$ and NAND chips, and exponential growth in general-purpose computing.
It has recently started increasing sales of its cutting-edge, high-bandwidth memory chips, the HBM4. The latest versions of this are used by Nvidia (NVDA) for its Vera Rubin, the next-generation datacenter AI and super-computing platform.
Despite the market's concerns about the longevity of the current chip boom, Samsung still forecasts a major supply-demand deficit to persist into 2027, as growth in agentic AI augments the huge buildout of AI infrastructure.
Writing about both Samsung and SK Hynix in a note to clients Wednesday, Gavekal Research analyst Udith Sikand said it's premature to claim the semiconductor boom's fundamentals are starting to unravel. The Chinese competitive threat will take time to emerge fully and he believes the proliferation of leveraged exchange-traded funds within Korea explains much of the recent volatility in the share prices.
One of the most encouraging features of Samsung's release was its emphasis on the growth in long-term agreements as their bigger clients now demand multi-year contracts to secure their supply. The more of these that are signed, the fewer the concerns about the longevity of the cycle, according to analysts.
Samsung global depositary receipts (UK:SMSN) traded in London were down 3.6% at $3,578 on Thursday.
-Jules Rimmer
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