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▲ Samsung Electronics, bear market/AI generated image
Samsung Electronics announced record-high earnings for the second quarter, but its stock price plummeted by about 7% in a single day. The market's focus quickly shifted from the 89 trillion won operating profit to concerns about the sustainability of AI investment and slowing memory demand.
According to CNBC on July 7 (local time), Samsung Electronics' stock closed down about 7% on Tuesday. Samsung Electronics announced that its preliminary operating profit for the second quarter increased from 57.2 trillion won in the previous quarter to 89.4 trillion won, or $58.4 billion. The year-on-year operating profit growth rate is expected to exceed 1,800%. Revenue from April to June jumped from 133.9 trillion won in the previous quarter to 171 trillion won, more than doubling year-on-year.
Zavier Wong, a market analyst at eToro, said, "The stock price has already reflected the historical quarterly earnings for several months. Although the numbers were significant, they did not deviate significantly from market expectations, leaving little room to reward new investors." He added, "The earnings are close to confirmation, and in the market, sell-offs occur at the point of confirmation." Wong pointed out that concerns that investment in AI infrastructure could not continue to grow at the pace that has driven memory price increases also dragged down the stock price.
The earnings were net of one-time costs, including provisions for employee bonuses. Earlier this year, Samsung Electronics abolished the bonus cap, which was limited to 1,000% of basic salary, and decided to allocate 10.5% of operating profit as bonus funds. This decision came after weeks of union protests demanding fair profit distribution. Tom Kang, Research Director at Counterpoint Technology Market Research, said, "A lot of negative news has accumulated, and everyone seems to want a piece of the profit. The unions want it, and the Korean government wants it."
Kang assessed that memory prices are excessively high, which could exacerbate demand concerns. He explained, "Monthly checks of consumer, mobile, and server memory prices show that prices are still rising," indicating that the price surge will continue at least through this quarter. Samsung Electronics' announcement to build a large-scale semiconductor manufacturing plant in the southern region of Korea also put pressure on the stock price. Kang stated that the region is far from the central part of Korea where existing manufacturing plants are concentrated, and the need to build infrastructure from scratch at the new site differed from investor expectations.
The listing schedule for SK Hynix's American Depositary Receipts (ADRs) also overlapped in the same week. Wong said, "SK Hynix's ADR listing in the same week also didn't help, as some of the rotational demand for investment funds went elsewhere." Despite the announcement of record-breaking second-quarter earnings, Samsung Electronics' stock price plummeted amid concerns surrounding the pace of AI investment, memory demand, bonus costs, and the burden of investing in new semiconductor plants.
[Article Key Summary]
-Samsung Electronics' preliminary operating profit for the second quarter is expected to increase by more than 1,800% year-on-year to 89.4 trillion won, or $58.4 billion.
-The stock price closed down about 7% on Tuesday as concerns about the sustainability of AI infrastructure investment and memory demand emerged.
-Bonus costs, investment in new semiconductor plants in the southern region, and SK Hynix's ADR listing also weighed on investor sentiment.
*Disclaimer: This article is for investment reference only, and we are not responsible for investment losses based on it. The content should be interpreted for informational purposes only.*
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