Summary of Key Points
Samsung Electronics' financial report for the second quarter of 2026 set a new record: operating profit reached 89.5 trillion Korean won (approximately $61 billion), a staggering year-on-year increase of 1,814%, surpassing even Apple's most profitable quarter. However, this "historically strong financial report" failed to boost the stock price, which has dropped by more than 40% since its peak in June. The main issue lies in the fact that all profits came from rising prices of memory chips (due to AI demand outstripping production capacity, leading to shortages), while other businesses (such as mobile phones and foundry services) either incurred losses or contributed very little. The market is concerned that the price increases may not be sustainable, and Samsung's profit structure is too singular, with insufficient disclosure of long-term contracts. As a result, the valuation logic has shifted from "how much they have increased in profits" to "how consistently they can make money."
1. Profit Surge by 18 Times? Relying Solely on Memory Chips
Among Samsung's four main businesses, only its Semiconductor Division (DS) is profitable, and it dominates the company's earnings:
- The DS division contributed 99% of the profit: With an operating profit of 89.2 trillion Korean won in the second quarter, it nearly equalled the company's total profit. The memory business (DRAM and NAND) was the main driver, while foundry and chip design divisions may have even incurred losses (analysts estimate a loss of 1.7 trillion Korean won each).
- Other businesses dragged down performance: The Mobile & Home Appliance Division (DX) lost 0.8 trillion Korean won (compared to a profit of 3.3 trillion last year) due to the higher costs of memory chips being passed on to its own mobile phone products. The Display Panel Division (SDC) and Automotive Electronics Division (Haman) combined only earned 1.1 trillion Korean won, accounting for less than 1% of total profits.
In short, Samsung's profits this quarter were entirely due to the increased prices of memory chips, with other businesses playing a minor role.
2. Why Are Memory Chip Prices So High?
The reason behind the price surge is the AI demand outstripping production capacity:
- AI competing for HBM capacity: AI servers require high-bandwidth memory (HBM), which shares the same wafer production capacity as regular memory (used in phones and PCs). Cloud companies like Microsoft and Google have spent over $800 billion on capital expenditures this year (a 80% increase year-on-year), mostly on GPUs, which must be paired with HBM. As a result, HBM production capacity is being used up, leading to shortages in regular memory.
- Exorbitant price increases: Contract prices for traditional DRAM increased by 58-63% quarter-over-quarter, and NAND by 70-75%, the largest increase in the industry's history. As the world's largest memory manufacturer (with a 38.5% market share in DRAM), Samsung benefited across all its product lines.
In contrast, SK Hynix has focused on producing HBM (with nearly 60% of its capacity dedicated to this), and while it also saw price increases, the gains were not as significant as Samsung's. Micron, on the other hand, secured long-term contracts to lock in future revenue but did not experience as large short-term price increases.
3. Why Is the Stock Price Falling Despite Strong Performance?
The sharp drop in the stock price reflects market concerns about the future:
1. Price increases are likely to slow down: TrendForce predicts a 13-18% increase in DRAM prices and 10-15% in NAND prices for the third quarter, half of the second-quarter increase. Morgan Stanley even suggests a peak in the fourth quarter. Although Citibank argues that low inventory levels will prevent a crash, the market is worried about a potential cycle reversal.
2. Too singular profit structure: Samsung's profits are heavily dependent on memory chips, with other businesses underperforming. Downstream manufacturers (such as OPPO and vivo) have begun to resist price increases, and Qualcomm has announced plans to pass on cost hikes. If memory prices fall, Samsung's profits could plummet.
3. Changing valuation logic: The market no longer focuses on short-term price increases but on the sustainability of earnings. SK Hynix and Micron have signed five-year contracts and disclosed customer guarantees, while Samsung has the fewest long-term contracts and never discloses their terms. This leads to skepticism about the stability of its profits.
4. Can This Profit Model Sustain?
To move away from its reliance on price increases, Samsung needs to rely on HBM (memory dedicated for AI):
- Past lag, current catch-up: In the first quarter of 2025, Samsung's HBM market share was only 13%, compared to SK Hynix' 69%. However, in 2026, Samsung took the lead in mass-producing HBM4 and entered NVIDIA's next-generation platforms, increasing its share to 21%. The company expects HBM4 to account for more than half of its HBM sales in the third quarter, with HBM revenue expected to triple by 2026.
- Still Uncertain: Samsung has not disclosed specific HBM revenues, and it remains unclear how much profit HBM will contribute. Additionally, its foundry business has just started to turn a profit (thanks to HBM orders), so it's uncertain whether this trend can continue.
In summary, if HBM sales continue to grow, Samsung could transition from a cyclical stock to a growth stock. However, if HBM development falls short of expectations, any drop in memory prices would put its profits under pressure.
5. Has the Memory Industry Changed?
The recent stock price decline indicates a fundamental shift in the valuation logic of the memory industry:
- Previously: Memory was considered a cyclical asset, with sharp price increases and declines.
- Now: The market values certainty—companies with more long-term contracts and secure orders receive higher premiums. Micron has $22 billion in customer guarantees, and SK Hynix has signed contracts with 10 customers. Although Samsung accounts for about 40% of DRAM shipments, it rarely discloses details, leading to skepticism.
For Samsung to recover its stock price, it needs to provide more evidence of long-term stability, such as disclosing HBM revenues and details on its foundry turnaround. Otherwise, it will still be viewed as a cyclical stock with volatile performance.
In Conclusion
Samsung's profits this quarter came from the cyclical benefits of rising memory prices driven by AI demand. To gain market recognition, it must prove that its growth is not dependent on temporary factors. It needs to show that HBM can support future growth or that long-term contracts can ensure stable earnings. Otherwise, even high short-term profits will not be enough to retain investors' confidence.