The memory bubble appears to be rapidly deflating.
After the semiconductor/memory sector was walloped in Monday US trading without any clear negative catalyst, the semiconductor-chasing world was eagerly waiting to hear what Samsung - the world’s largest memory maker - would report in its preliminary Q2 earnings report as investors sought to justify sky-high investments and valuations around AI. In the end, it was not good enough, and the stock is down 5% at last check.
Samsung Electronics’s quarterly profit surged 19-fold due to relentless demand for memory chips needed in AI data centers. For the 3 months ended June 30, the company reported preliminary operating income of 89.4 trillion won ($58 billion) not only beating the median analyst estimate of 84.2 trillion won, but dwarfing its performance for all of 2025. Revenue more than doubled to 171 trillion won, also modestly beating expectations (Samsung will release a full financial statement, including net income and divisional breakdowns, around the end of the month).
Yet while the historicals were clearly strong, they were not strong enough for a company that had been priced beyond perfection, and where it didn't take much to disappoint investors just looking for a hint to take profit. And they go it:
- *SAMSUNG DROPS 4.5% IN PRE-MARKET ON NEXTRADE AFTER 2Q GUIDANCE
Indeed, investors had harbored extremely high hopes for Samsung, its peer SK Hynic and other chipmakers that are posting unprecedented profit margins thanks to a historic buildout of AI infrastructure worldwide. Yet that capex buildout is likely ending, after META lobbed the first shot across the bow of unlimited capital spending last week and sparked the biggest 2-day selloff of high beta momentum stocks since covid.
“We will be looking for signs that this represents a sustainable step change in the company’s annual free cash generation,” said Brian Cho, a portfolio manager at Causeway Capital Management, adding that he would also be looking at management’s shareholder return policy.
A shortage in memory chips has become a key bottleneck for AI development, executives including Nvidia CEO Jensen Huang and OpenAI COO Brad Lightcap have warned. Manufacturers are giving priority to high-end memory development to meet data centers’ needs, leading to inadequate volumes of conventional memory as well. Analysts expect shortages to last through 2027 at least, giving Samsung and rivals SK Hynix and Micron enormous pricing power. Meanwhile, China's own DRAM giant, CXMT, is rapidly catching up to its Korean peers, and rapidly taking market share, sparking concerns that China may soon do to commodity memory chips as it has done to, well, pretty much every other product it has competed against: sparked a deflationary tsunami.
But not yet: the average operating profit margin for the big three chipmakers is projected to trend around 75% to 80% in the June quarter, according to market research firm Counterpoint. Some argue that such margins constitutes excessive profiteering, it said in a report. “There can be regulatory pressure on memory players if this situation continues,” it said.
Shares of Samsung, which has broad portfolio of chips and consumer electronic, have underperformed cross-town rival SK Hynix’s, which is more focused on high-end memory geared for AI’s computation needs. Samsung’s shares, which were hurt by a selloff in the five days to Friday, are up 165% this year, compared with SK Hynix’s roughly 260% gain.
Korea is hoping that the cartel pricing of Samsung and SK Hynix ends up creating an impenetrable moat which benefits the entire country: the two chipmakers are central to South Korea’s ambitions to pull ahead of other countries to take leadership in AI. Samsung Group and SK Group plan to build two chipmaking plants apiece in the nation’s southwest for a total of 800 trillion won to expand capacity quickly. The country aims to double its memory production capacity within five years. For 2026, Samsung has announced plans to spend over $70 billion in production capacity expansion and research. However, as we reported last night, one thing Seoul apparently forgot is the Chinese threat, and contrary to conventional wisdom that Chinese memory tech is far behind, Korean experts have warned that CXMT is closing the gap with Korea "far faster than expected."
And with Korea opening for trading, it's not surprising that Samsung stock, which was priced beyond perfection, is down as much as 5% in early trading
