Samsung's Share Price Fall Despite Earning Surprise - Is Samsung at Risk or is it an Opportunity to Buy?

 Samsung Electronics has released their earning guidance for the second quarter of 2026. An operating profit of 89.3 trillion Korean Won (roughly around $60 billion), made Samsung Electronics the most profitable company in the world, even surpassing Nvidia. However, its stock price declined around 6% on the day of the release, and another 6% the day after, dragging the price to around 70% of its all time high. The Wall Street Journal claimed that Samsung Electronics had "Failed to Impress". However, a quarterly operating profit of around $60 billion in a single quarter is hardly a disappointing performance, let alone a viable reason for the company to lose 10% of its value. Although the recent plummet may be a result of excessive anxiety, questions remain.

 Is Samsung Electronics at risk? Or is this a perfect opportunity to buy more?

The "Risks"

RAM Won't be in Demand?

 The major reason for the recent plummet is that the market fears that Big Tech will not be able to spend in chips as this level and the memory chips will be overproduced in the near future. The spending continues to exceed the revenue, and the gap just seems to get wider (Forbes), ultimately raising concerns that Bit Tech will pause their spending. Micron, SK Hynix and Samsung Electronics, the manufacturers of the RAM and the storage chips, are all building new factories to produce more memory chips. In other words, the market fears that the demand will decrease but the supply will increase. In a traditional economy, manufacturers would make more money on more demand and less supply. However, in the current market, the demand could shrink and the supply could increase. Shuli Ren, Bloomberg, forecasts that the memory chips will be oversupplied by the year 2028.

Dismiss the Fear

 "...The current shortage could continue until 2030..." - Chey Tae Won, chairman of SK Group (Reuters). Despite many concerns, it is highly probable that Samsung Electronics' memory chips will continue to be in demand for years to come. Although this extraordinary demand may have peaked, Lip-Bu Tan, the CEO of Intel, agrees with Chey Tae Won that the shortage will last for at least the next couple of years. As a blogger without an expert knowledge of AI, it is difficult to predict the future demand for memory chips. However, there seems to be a general agreement that the demand for memory chips will persist until 2027.

 I would like to make two bold predictions. One: AI spending may decrease, but not dramatically (this would be discussed more deeply in the next article). Two: chips will not be oversupplied. This argument is based on my prediction that Big Tech will at least spend 70% of what it currently spends. Considering that around 70% of the RAM being produced in 2026 will be used for AI (Wall Street Journal), a 30% drop in AI spending would mean around a 21% drop in demand. Due to decreased demand and increased supply, the three giants would be unlikely to remain profitable as they are now. However, it is doubtful that the chips will be oversupplied, as the three are in an oligopolistic market. They would rather not produce and let their factories do nothing rather than overproduce. A decrease in demand for memory chips may hamper Samsung Electronics' growth, but not to the devastating degree.

The Jack of all Trades

 Unlike its competitors SK Hynix and Micron, Samsung Electronics has other sources of income: although a decrease in demand for memory chips may hamper its growth, it could invest its profits in other businesses, which could become the next income stream. One example would be the foundry business. With TSMC struggling to meet demand (Reuters), Samsung Electronics' foundry business could help ease the bottleneck. The foundry industry has finally entered the green (Reuters), after years of being in the red. Not to mention the DX division, which includes mobile devices, laptops, computers and home appliances, continues to be in the green. Samsung Electronics is also the majority shareholder of other affiliates including Samsung SDI, Samsung SDS, Samsung Electro-Mechanics, and a major shareholder of Samsung Biologics.

The Real Risk

 It is no secret that the US is aiming to develop a powerful and overwhelming AI. Through AI, they seek to protect national security, pursue geopolitical power but most importantly, economic dominance. Yet, AI companies like OpenAI and Anthropic have been failing to top the list in operating profit and net income. According to Fortune, OpenAI remains unprofitable and Anthropic is projected to make $10 billion in the 2nd quarter according to CNBC. It is no surprise that chipmakers are outperforming AI companies. However, a foreign company being the most profitable in the world must raise a red flag in Washington. Although it may not be the first time for a foreign company (Saudi Aramco in 2024) to claim number one in earnings, its accomplishment was driven by oil, whereas Samsung Electronics' achievement was mainly due to AI boom which had been supported by the US.

 Considering that Samsung Electronics rivals American corporations in electronics (Apple) and memory chips (Micron), it may be fair to argue that the US has contributed to their rival's growth by investing in AI. It is doubtful that the US would take actions to curb Samsung Electronics' growth in the near future due to the memory shortage (CNBC) and the demand for memory chips in the AI infrastructure (Business Times). Furthermore, Republic of Korea tend to ally with the US making imminent action improbable. However, USA is renowned for keeping foreign companies that compete with their domestic companies in check. In 1986, USA agreed on a deal with Japan to protect their chip conglomerates (Washington Post). There is a probability that the USA will take similar action once the AI companies are able to handle the memory shortage.  To make matters worse for Samsung Electronics, its lack of monopoly may make them more vulnerable should the US take a hostile action.

Author's Thoughts and Predictions

 A friendly reminder to the readers, that this is a personal blog about investing who invests as a hobby not as a professional. The future ahead of us is yet to be known. Please take the information and insight written in this article into account, but be critical about the writing, especially the insights. The final score is solely based on the author's instinct, and there is no special formula for it.

 

 It is fair to argue that Samsung Electronics' share price depends on memory chips demand and supply. Considering that memory chips are essential for the development of AI, it is highly unlikely that the US would make an attempt to curb Samsung Electronics' growth as a lack of production or tariffs on memory chips should only result in AI development being more costly. Has the demand really maxed out and in years to come there will be a plethora of memory chips? My personal prediction is no. But will the memory chips giants continue to be as profitable as they are now? My prediction would be no once again. Unlike NVIDIA which has monopolized the AI GPU market using CUDA, Samsung Electronics is not a monopoly in the RAM market. The market for RAM is an oligopoly formed by SK Hynix, Micron and Samsung Electronics. There would be no incentive for any of the three to overproduce memory chips. However, Samsung Electronics would struggle to maintain their current level of profitability.

 The US may recommend or even pressure Samsung Electronics to build a factory in the US, which could drop the profit margin slightly. Hostile actions such as imposing tariffs or banning imports should only hurt the US, and the "USA Risk" seems low for the time being. However, if Samsung Electronics continues to be the most profitable company in the world, the White House may consider putting Samsung Electronics in check. The US may plan to invest in chip companies to produce RAM to create additional competition, Intel being a possible candidate. But once again, the US taking actions in the near future seems unlikely.

 Considering that Samsung Electronics lost around a third of its value from its all time high, the stock price has quite a room for increase. Considering that the demand will persist - which is once again, my personal opinion-, there is a merit to invest. However, considering the "Korea Discount" and the confusing corporate governance of the typical Korean conglomerate, the final score would be: 60/100.