Samsung Electronics (GB:SMSN) projects a 95.7% plunge in its operating earnings in Q2. The multinational electronics company’s second-quarter outlook indicates that the slump in demand for memory chips continues despite the hype around generative AI (Artificial Intelligence) and LLM (Large Language Models).
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The surge in demand for AI systems has opened up a solid growth avenue for chip companies. However, the AI boom has, until now, failed to reaccelerate growth in memory chip demand.
Samsung expects Q2 sales to be in the range of 59 trillion Korean won to 61 trillion Korean won. The midpoint of the guidance range reflects a decline of about 22% year-over-year.
Macro Headwinds Continue to Hurt Demand
The continued pressure on consumer spending due to the prolonged high inflation rate slowed the demand for smartphones and personal computers (PCs). Further, inventory issues continue to pose challenges.
During the Q1 conference call, Samsung said its Semiconductor business could continue to be under pressure. Within the Semiconductor segment, the memory business could continue to stay weak due to macroeconomic risks and restricted investments by server customers. This could lead to a significant drop in the operating profit of the semiconductor business.
Is Samsung Stock a Buy Right Now?
The slump in Samsung’s business continues, and the trend could sustain in the near term due to macroeconomic challenges and inventory issues. This would weigh on Samsung’s short-term financials and restrict the upside in its stock price. Further, the AI boom could take more time to meaningfully lift memory chip demand.
Nonetheless, Samsung is a dominant player in the memory chip segment and consumer electronics. Its strong competitive positioning in the premium smartphone segments provides a solid foundation for long-term growth, which is why Samsung stock sports an Outperform Smart Score of nine on TipRanks.
