AI Technology Shift to Help Drive Samsung’s Comeback

(Bloomberg) — After lagging the global rally in semiconductor stocks over the past year, Samsung Electronics Co. is primed for a spot at the front of the pack on newfound optimism over its artificial intelligence strategy.

Investors are starting to realize that AI will boost demand for NAND — where Samsung has the largest market share — as well as the high-bandwidth memory dominated by rival SK Hynix Inc. Analysts have been raising price targets for Samsung to factor in AI benefits plus signs of a broader rebound in memory demand and prices after a long slump.

Fund managers have begun shifting money into Seoul-listed Samsung to ride its expected bounce. While AI titan Nvidia Corp. has tripled in the past 12 months and its key HBM supplier SK Hynix has more than doubled, Samsung is seen having greater upside after a mere 32% gain.

“We’ve started reducing our holding in SK Hynix and allocating it to other parts of the memory chip value chain that haven’t benefited as much, like Samsung Electronics, where we think that upside hasn’t yet been realized,” said Christine Phillpotts, portfolio manager at Ariel Investments LLC. “We expect some catalyst to occur for that upside to be materialized in Samsung.”

Samsung has outperformed other AI stocks since an endorsement by Nvidia’s Jensen Huang in March fueled expectations for an HBM supply deal later this year. That would help it gain a key foothold in the battle with smaller SK Hynix, which is estimated to have a 90% share in the latest version of HBM.

Then came a report this week from Peter Lee, an analyst at Citigroup Inc., alerting investors to a looming “replacement cycle” in which solid-state drives may dislodge hard-disk drives for use in AI. As SSD relies on NAND memory for storage, Samsung stands to gain, Lee said.

“Our new conclusion is that SSD will be part of AI,” contrary to the popular belief in the market, the Citi analyst said. Solid-state drives are “much more suitable for AI training applications” as they are 40 times faster than HDD, he added.

Lee is among the analysts who have lifted price targets for Samsung recently. The consensus calls for a 17% rise in Samsung over the next year, compared with gains of around 12% for SK Hynix and 14% for Nvidia.

Earnings expectations have been rising for the world’s largest memory maker as well, and may be poised for another boost. Before Friday’s open, Samsung reported operating profit for the first quarter that beat the average analyst estimate.

The share-performance gap is beginning to close, with Samsung rising 15% over the past month, the best performer on a Bloomberg gauge of seven major Asian chip stocks. On a year-to-date basis, it’s still trailing all other members including Taiwan Semiconductor Manufacturing Co. and Japan’s biggest chip-equipment makers.

Jae Lee, chief investment officer at Timefolio Asset Management SG, is among investors that are looking to profit on a resurgence for Samsung. “We’ve made Samsung our top pick since March,” he said in an interview, adding that the company still needs show “more clarity on HBM” to be considered an AI stock.

“People didn’t know what was going on when the NAND market saw a sudden rebound a couple of weeks ago, but the top-tier US tech firms’ data centers were switching to enterprise SDD from HDD because HDD is too slow and can’t read data quickly,” Lee said. “There’s all of sudden a chance for chipmakers to make profit from NAND.”

–With assistance from Yoolim Lee.

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