The memory cycle has arrived, profits "increased tenfold", Samsung enters the "golden period"

South Korean tech giant Samsung Electronics is predicted to see a year-on-year surge of 931% in its operating profit for the first quarter.

On April 5th, Samsung stated in its preliminary financial report that the operating profit for the first quarter of this year is 66 trillion Korean won (approximately 49 billion US dollars), surpassing the 6.4 trillion Korean won from the same period last year. This also marks Samsung's highest operating profit record since the third quarter of 2022.

Additionally, Samsung forecasts that its first-quarter revenue will increase by 11% year-on-year to 71 trillion Korean won.

Analysts believe that Samsung's optimistic performance forecast is mainly attributed to the rebound in memory chip prices. Last year, faced with high inflation, consumers reduced their purchases of electronic products, leading to a sluggish market. However, the booming development in the field of artificial intelligence has reignited the market demand for a large number of memory chips.

Meanwhile, in order to catch up in the high-bandwidth memory (HBM) chip market, Samsung is focusing on enhancing the production of its HBM chips. These chips are particularly suitable for NVIDIA graphics processors for AI computing. Currently, the HBM market is mainly controlled by SK Hynix, and NVIDIA's founder and CEO, Huang Renxun, expressed interest in purchasing Samsung's HBM chips last month.

A previous article by Wall Street News mentioned that Morgan Stanley released a research report, detailing various key issues regarding Samsung in the semiconductor field, including the latest developments in Samsung's high-bandwidth memory (HBM) business and industry comparisons.

According to Morgan Stanley's research report, as of the end of 2023, Samsung has completed HBM3 qualification certification with three major GPU customers and entered mass production. Sample testing of HBM3E 12-Hi is currently underway, with wafer stacking expected to begin in the second quarter of 2024 and mass production starting in the third quarter. Morgan Stanley estimates that by the end of 2024, Samsung's HBM capacity will increase from 60k at the end of 2023 to 130k/month.

In Morgan Stanley's global memory market update in February 2024, it is predicted that Samsung's HBM revenue will reach 5.6 to 9.5 billion US dollars from 2024 to 2025, a significant increase from last year's 1.9 billion US dollars. With the increase in HBM chip density and higher height-to-width ratios, there is a reasonable upside risk.

However, data shows that Samsung Electronics' valuation discount compared to SK Hynix has widened to 36%, while Micron's current trading price is about 2.2 times the future 12-month price-to-book ratio, significantly higher than Samsung Electronics' 1.1 times price-to-book ratio. Morgan Stanley believes that this undervaluation is mainly due to the market's subdued expectations for Samsung's HBM progress Morgan Stanley stated that the narrowing gap between HBM execution progress and DRAM profit margins compared to peers is a key factor for Samsung Electronics' stock price outperforming its peers. With the expected ordinary DRAM profit margin of Samsung possibly matching or even exceeding HBM by the end of the year, when the market narrative shifts from "AI memory" to "overall memory cycle recovery," stocks may react more positively.

The latest stock price trend has proven this point, with Samsung Electronics' stock price rising by over 15% since March 20th.

Furthermore, analysts also mentioned that Samsung's first AI-powered smartphone has had a positive impact on the company's performance. Since January, Samsung has been selling its Galaxy S24 series flagship smartphones, which are equipped with various features based on Google's generative AI technology, such as real-time call translation and tools to search for relevant information by selecting images on the phone