▶ Full Post Text
Samsung reported Q2 operating profit of about $58.4 billion, up roughly 1,810% from last year. That's a massive number, more than the company's entire annual profit from just a few years ago. The stock still dropped nearly 7% and it dragged the whole chip sector down with it, Intel and Applied Materials fell double digits at one point, AMD dropped 8%, and the broader semiconductor index sank over 5%.
There are few things which are on my mind. First, this looks like classic sell-the-news. Samsung stock had already run up about 150% this year, and analysts had been pricing in and expecting a historic quarter for months, so even a historic quarter wasn't enough to impress anyone. the actual number. Deutsche Bank reported that actual number Samsung reported was only about 6% higher than what analysts ad already predicted for this specific quarter. So, Wall Street had already built almost all of that enormous growth into their pricing beforehand.
Second, there's a real nuance in the numbers. Revenue actually missed estimates slightly, even though profit blew past them, so the money came almost entirely from rising memory chip prices, not from selling more volume. There's also a bonus program that ties 10.5% of the semiconductor division's profit to employee payouts, and stripping that out would've pushed the real number even higher, so the underlying business might be stronger than the headline suggests.
Third, and probably the most interesting part, Samsung is now trading at around 5 times forward earnings, well below its usual 14x average and close to its cheapest level ever, all while saying HBM memory (the type used for AI chips) is sold out with shortages expected to last into 2028. That's a strange mix, a record-profit company priced like it's in trouble, while management is saying demand isn't slowing down anytime soon.
The bear case is present too. The last major memory boom in 2018 also produced a record profit right before prices collapsed and profit nearly halved the next year. Morgan Stanley also warned the day before earnings that big cloud companies might start cutting back on AI spending, which would hit memory demand directly. On top of that, Samsung just committed roughly 400 trillion won to a new factory in a location that reportedly needs infrastructure built from scratch, so spending isn't slowing down even as questions grow about how long the good pricing lasts.
So does a 5x forward multiple on a company posting record profits and years of supply shortages look like a real opportunity or does the 2018 comparison carry more weight than the current cheap price.