Market views turn bullish on Samsung as AI-led chip demand rises

Views on leading memory chipmaker Samsung Electronics Co. are becoming more bullish as the South Korean tech giant is expected to benefit from a rise in demand for semiconductors that run artificial intelligence devices such as OpenAI’s ChatGPT.

The expected shortage of chip engineers for advanced chips made by top foundry player Taiwan Semiconductor Manufacturing Co. will also be a windfall for Samsung as clients look beyond TSMC, analysts said.

“The increasing foundry order from Nvidia for AI chips plus Apple’s chip-guzzling new products will lead to a meaningful recovery in TSMC’s operating rates from the second half,” said Hyundai Motor Securities analyst Greg Roh.

“The worsening shortage of engineers in the sub-10-nanometer process is also having a positive effect on Samsung’s foundry business as fabless customers, which heavily rely on TSMC, are moving to diversify to other foundry firms,” he said.

The brokerage on Thursday raised its 12-month target price for Samsung to 87,000 won, up 11.5% from 78,000 won earlier, while maintaining a Buy rating, citing the possibility of Samsung winning more foundry contracts.

In early Thursday trade in Seoul, shares of Samsung fell 0.3% to 71,700 won in line with the broader market index Kospi’s 0.2% decline.

SERVER DEMAND ALSO ON RISE

Samsung is the world’s top player in the memory sector. In the contract manufacturing business, however, it is a distant second with a low double-digit market share after TSMC, which controls more than half of the global foundry market.

With demand for high-performance computing (HPC) chips used in supercomputers and computer clusters on the rise, foundry competition is heating up.

Hyundai Motor Securities’ Roh said increasing demand for servers will also become a tailwind for Samsung.

He said the demand for edge servers – a device that provides an entry point into a network – will steadily rise in line with heavy investments in supercomputers by Microsoft, Google and China’s Baidu.

“The demand for hyperscale servers will rise from the fourth quarter, timed with the replacement cycle of the central processing unit,” the analyst said.

He expects the global server demand to reach 14.38 million units in 2024, up 4% from this year. DDR5 DRAM chips will go mainstream for such servers, he said.

PRICE UPTREND TO START IN Q4

KB Securities also raised its 12-month target price for Samsung to 95,000 won, up 12% from 85,000 won earlier.

“Samsung’s DRAM shipments in the second quarter rose 20% from the previous quarter, signaling the start of an inventory cut. Its planned launch of the HBM3 chip in the fourth quarter will boost its sales through next year,” said analyst Kim Dong-won.

He revised up Samsung’s 2023 operating profit estimate by 4.7% to 11 trillion won ($8.6 billion) and next year’s profit estimate to 41 trillion won, a 20% increase from the brokerage’s earlier forecast.

“In the wake of output reductions by chipmakers, DRAM and NAND prices will rebound from the fourth quarter, entering an uptrend for the first time since the third quarter of 2021,” he said.

Recently, memory chip prices have been staging a rebound after Samsung joined the industry’s move to curtail production, boosting hopes for a sooner-than-expected market recovery.

Write to Eui-Myung Park at uimyung@hankyung.com

In-Soo Nam edited this article.