Changes in AI technology may propel Samsung's recovery

After trailing the global semiconductor rally for a year, Samsung Electronics Co. is poised to lead on optimism about its artificial intelligence plan. AI is expected to enhance demand for NAND, which Samsung dominates, and high-bandwidth memory, dominated by SK Hynix Inc. Investors are realizing this. Analysts have raised Samsung price predictions to account for AI benefits and a broader memory demand and price revival after a long downturn.  

Fund managers are buying Seoul-listed Samsung to ride its predicted rebound. Nvidia Corp. has tripled and SK Hynix has more than doubled in the past year, but Samsung has more upside following a 32% increase.  

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 upside hasn't yet been realized,” said Ariel Investments LLC portfolio manager Christine Phillpotts. “We expect a catalyst for that upside in Samsung.”  

Samsung outperformed rival AI companies after Nvidia's Jensen Huang endorsed it in March, raising anticipation for an HBM supply contract later this year. That would give it an edge over smaller SK Hynix, which has a 90% share in the current HBM.

This week, Citigroup Inc. analyst Peter Lee warned investors of a “replacement cycle” in which solid-state drives may replace hard-disk drives for AI. Samsung benefits from SSD's NAND memory storage, Lee stated. “Our new conclusion is that SSD will be part of AI,” the Citi analyst stated, defying market belief. He noted that SSDs are 40 times faster than HDDs, making them “much more suitable for AI training applications”.  

Recently, Lee and other analysts have raised Samsung price expectations. Samsung is expected to rise 17% next year, while SK Hynix and Nvidia will rise 12% and 14%, respectively. As earnings expectations rise, the world's largest memory maker may see another lift. Samsung's first-quarter operating profit topped analyst expectations before Friday's open.  

Samsung rose 15% in the previous month, the strongest performer on a Bloomberg survey of seven big Asian chip firms, closing the share-performance gap. It trails Taiwan Semiconductor Manufacturing Co. and Japan's leading chip-equipment makers year-to-date.  

Timefolio Asset Management SG chief investment officer Jae Lee wants to profit from a Samsung revival. In an interview, he added, “We've made Samsung our top pick since March,” adding that it needed “more clarity on HBM” to be 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 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. “Chipmakers can now profit from NAND.”  

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