Samsung, SK hynix Target Prices Raised on Record Earnings Outlook

Samsung Electronics and SK hynix are on track to achieve record earnings in the current year, with their combined third-quarter operating profit forecasted to exceed 188 trillion won, or about $138.47 billion. The surge in demand for high-bandwidth memory (HBM) used in artificial intelligence (AI) servers has led to a persistent shortage of memory semiconductors, which in turn is boosting both earnings and share prices.

According to FnGuide, a financial data provider, the consensus estimate for Samsung Electronics' third-quarter operating profit, as of Sept. 30, was 110.28 trillion won. This is an impressive 806% increase compared to the same period last year and a 23% rise from the previous quarter. If this forecast is realized, Samsung Electronics will have posted quarterly operating profits surpassing 100 trillion won for the first time in history.

SK hynix is also expected to report a strong operating profit of 78.06 trillion won, marking a 29% increase from the previous quarter. The combined operating profit of the two companies is projected to reach nearly 200 trillion won. Financial institutions have responded by raising their target prices for the two chipmakers, signaling their optimism about stronger earnings.

Yuanta Securities increased its target price for Samsung Electronics from 530,000 won to 630,000 won, while Mirae Asset Securities raised its target to 400,000 won. SK hynix's target prices have also been raised, with Mirae Asset Securities setting it at 3.1 million won and DB Securities at 2.3 million won.

Despite some market concerns about a potential "semiconductor peak-out" due to a possible slowdown in AI infrastructure investment, the signs of tight supply are still evident. Industry research firm TrendForce predicts that conventional DRAM prices could rise by up to 18% during the third quarter, while NAND flash prices may increase by 15%.

Moreover, expectations for broader adoption of the sixth-generation HBM4 and improved yields may lead to additional price increases in the memory sector. In contrast, Bernstein, an overseas investment firm, adopted a more cautious stance on SK hynix, lowering its target price from 3.3 million won to 2.7 million won. This move was attributed to weaker HBM export flows compared to Samsung Electronics.

Analyst Mark Li highlighted the positive signals from South Korea's July and August export data, positioning Samsung Electronics as his preferred stock among the two companies. Key indicators such as Micron's earnings report and macroeconomic factors are expected to provide insights into the short-term direction of the memory market.

If Micron's revenue guidance and profit margins outperform market expectations, concerns over the sector's outlook could ease. However, external financial uncertainties remain, with the U.S. 10-year Treasury yield reaching a 19-year high of 5.266% and international oil prices also on the rise. In the long run, memory manufacturers are expanding long-term supply agreements with customers to mitigate price volatility.

Samsung Electronics, SK hynix, and Micron are establishing contracts that secure supply volumes within a predetermined price range, enabling them to prepare for potential price declines. Bernstein forecasts that memory sector gross margins could fall to the high-70% range, while memory prices may normalize towards the end of 2028 as manufacturers scale up production capacity and anticipate a slowdown in AI investment.