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Some investors may be worried about an artificial intelligence-related asset bubble. However, sales of AI chips remain strong, with the market size expected to reach nearly $100 billion this year, double that of 2023. However, not all chipmakers are profiting.
Samsung Electronics is a notable example. South Korean semiconductor and smartphone makers released fourth-quarter operating profit forecasts on Wednesday that were significantly lower than market analysts expected, highlighting continued challenges in taking advantage of the trend.
Samsung said it expects operating profit to be 6.5 trillion won ($4.5 billion) for the quarter ending December. This was a 29% decrease from the previous quarter, which also missed earnings expectations for the chip business. The company’s results have been disappointing enough that it issued an unusual apology to investors in October, acknowledging that the company was considered to be in “crisis.”
Delays in the supply of high-end chips, such as the high-bandwidth memory chips Nvidia uses in its AI chips, have left it behind smaller rival SK Hynix in this lucrative market. Meanwhile, the traditional memory chip sector, which includes automotive chips and devices such as smartphones, is also facing increasing pressure from falling prices and demand. The average price of these chips has fallen by about a quarter in the last year.
Samsung’s challenge is much deeper than just chips. Historically, sales of devices such as smartphones, televisions, and consumer electronics have been a reliable buffer against cyclical downturns in the chip industry. But this once-reliable segment now faces headwinds from declining consumer demand and increased competition.
Investors shouldn’t completely write off Samsung when seeking exposure to AI. The company maintains a key advantage as one of the few chipmakers in the world capable of producing memory chips essential to AI applications. Prices for traditional memory chips are expected to fall further this year, and higher-margin AI chips will help chipmakers offset weaknesses in other areas.
However, investors’ concerns are unlikely to be resolved until Samsung secures its position as a major supplier to Nvidia. The stock is still down more than a third in the past six months and trades at a forward P/E of 11 times, about half that of its Taiwanese peer Taiwan Semiconductor Manufacturing Company. Samsung’s latest profit forecast calls for an operating margin of 8.7%, compared to TSMC’s average profit margin of more than 40% over the past four years.
As rivals rapidly gain market share, closing the gap will depend on how quickly Samsung can catch up in technology and customer list.
june.yoon@ft.com
