A year ago, Samsung Electronics management had to explain densely to shareholders about its delays in the race for dominance in the artificial intelligence sector. Today, the mood in Suwon is quite the opposite. The Korean giant’s shares have risen by an impressive 62 per cent since January, with the company proudly announcing its entry into an “unprecedented super-cycle” driven by giant investments in AI infrastructure.
The key to this turnaround appeared to be a closer relationship with Nvidia. Jensen Huang’s recent praise of Samsung’s HBM4 memory and the announcement of a strategic partnership with the Korean foundry confirms that the company is successfully bridging the gap with its main rival, SK Hynix.
With the wind in its sails, Samsung is seeking to hedge against the semiconductor market’s historic pain point of rapid cyclicality. Co-CEO Jun Young-hyun, who oversees the chip division, is implementing a new fundamental contracting strategy.
Instead of relying on traditional quarterly or annual contracts, the company is actively negotiating long-term contracts of three to five years with key customers. This is a pragmatic business move to ‘concrete’ the current high margins and ensure revenue stability in the face of market concerns about a possible AI bubble.
However, the semiconductor division’s winning streak comes at a price for the wider technology ecosystem. Rising prices and a limited supply of memory, absorbed en masse by server rooms, are beginning to pose a serious bottleneck for hardware manufacturers.
Jun openly acknowledges that this cost-burdening trend, combined with macroeconomic uncertainty and potential customs turmoil, poses a real risk to profitability and supply in the PC and smartphone markets. Infrastructure development is also being dragged down by global power problems in new data centres.
However, before the macroeconomic challenges can fully kick in, the Korean giant has to deal with tensions in its own backyard. In the shadow of record stock market profits, staff frustration is growing. Unions are threatening strikes in May, singling out management for wage disparity with market competitors, stemming from lean years in the past.
While Jun is reassuring that a return to high yields will unlock premiums and quickly settle the dispute, the spectre of production disruption in the midst of a demand eldorado remains a significant warning sign for investors.
