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Samsung AI Chip to Compete With Nvidia as Investors Pour In

Published April 5, 2024 10:14 AM
Giuseppe Ciccomascolo
Published April 5, 2024 10:14 AM

Key Takeaways

  • Investors and analysts are increasingly bullish on Samsung’s potential in the AI chip sector.
  • Samsung holds the largest market share in NAND memory, a key component for AI applications.
  • This makes it the strongest performer among seven major Asian chip stocks.

Samsung is emerging as a significant force in the artificial intelligence (AI) chip sector, with investor and analyst confidence in the company reflected in recent stock increases.

Investors are awakening to the potential of AI to drive demand for NAND. Samsung holds the largest market share in high-bandwidth memory, an arena currently dominated by rival SK Hynix. Meanwhile, analysts are revising their price targets for Samsung upwards, factoring in the benefits derived from AI advancements.

Funds Pour Cash Into Samsung Shares

Investment managers are shifting funds towards Seoul-listed Samsung, anticipating a rebound. Despite Nvidia tripling in value over the past year and its primary HBM supplier, SK Hynix, more than doubling, Samsung’s 32% gain offers greater growth potential.

Christine Phillpotts, portfolio manager at Ariel Investments, noted  a strategic shift: “We’re reducing our holdings in SK Hynix and reallocating them to other segments of the memory chip value chain, such as Samsung Electronics, where we see untapped potential. We expect catalysts to unlock this potential for Samsung.”

Samsung’s performance has surpassed other AI-related stocks, especially since Nvidia’s March endorsement , igniting speculation about a potential HBM supply agreement. Such a deal would strengthen Samsung’s position against SK Hynix, which dominates the latest version of HBM with a 90% market share.

Although Samsung’s stock increased 15% in the past month, making it the strongest performer among seven major Asian chip stocks tracked  by Bloomberg, it still lags behind others on a year-to-date basis.

Jae Lee, chief investment officer at Timefolio Asset Management SG, is seizing the opportunity presented by Samsung’s resurgence. “We’ve designated Samsung as our top pick since March,” he said , underlining the importance of Samsung clarifying its position on HBM to solidify its standing as an AI-focused stock.

Lee further explained recent market dynamics, highlighting the sudden shift towards enterprise SSDs from HDDs in top-tier US tech firms’ data centers. This transition presents a lucrative opportunity for chipmakers to profit from NAND.

SSD Is The Key For Samsung’s Growth

A significant trend has emerged to bolster the notion of Samsung’s prominence in the future AI chip landscape. More users are opting for solid-state drives (SSD) over traditional hard-disk drives (HDD). Peter Lee, an analyst at Citigroup, has highlighted  the prospect of a forthcoming “replacement cycle” wherein SSDs may supersede HDDs in AI applications. As SSDs heavily rely on NAND memory for storage, Samsung stands to benefit significantly, according to Lee.

Contrary to prevailing market sentiment, Lee argues that SSDs will play a crucial role in AI. He notes that SSDs are vastly superior for AI training applications, being 40 times faster than HDDs.

Lee is part of a cohort of analysts who have recently raised price targets for Samsung. The consensus among analysts anticipates a 17% increase in Samsung’s value over the next year. This compares to gains of approximately 12% for SK Hynix and 14% for Nvidia.

High-bandwidth memory (HBM) is integral to Samsung’s ambition to lead the global chip market, representing one area where Samsung faces stiff competition. The company reported a more than 40% increase in HBM sales  in the December quarter. This figure signals a recovery in memory demand.

Kyung Kye-hyun, Samsung’s CEO overseeing its semiconductor business, expressed  optimism at the company’s annual shareholders’ meeting on March 20. He forecasts a return to 2022 semiconductor business levels this year as the prolonged market downturn subsides. During that year, the company averaged an operating profit of over 10 trillion won per quarter.

Kyung discussed Samsung’s emphasis on advancing its packaging business, particularly after establishing a dedicated team the previous year. His optimism coincides with Nvidia co-founder Jensen Huang’s endorsement of Samsung as a supplier of high-bandwidth memory chips, crucial components for the graphic processors driving AI systems.

SK Hynix’s Still Too Far

SK Hynix , a major rival to Samsung, has secured a partnership with Nvidia. It will provide the US company with the latest high-bandwidth memory, HBM3E. While Nvidia may also consider sourcing HBM chips from Samsung, SK Hynix’s advantage lies in supplying previous generations of this technology.

The AI trend has favored SK Hynix, with its shares nearly doubling over the past year, surpassing Samsung’s gain. SK Hynix’s dominance in HBM chips, crucial for training large language models, contributes to this divergence. Conversely, Samsung’s exposure to the cyclical demand of traditional memory, due to its significant market share in consumer devices, presents a different dynamic.

Samsung still trails AI-booste SK Hynix and Nvidia
Samsung still trails AI-boosted SK Hynix and Nvidia. l Source: Bloomberg

It came as a surprise when reports emerged of Huang’s intention to procure memory from Samsung. His remarks propelled shares of South Korea’s leading company to a remarkable weekly surge.

Furthermore, in October 2023, the US certified  both Samsung and SK Hynix as “verified end users” and allowed them to export equipment to Chinese factories without a separate approval process. This factor could boost sales for both companies. It remains to be seen who will benefit the most.

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