Samsung expects prolonged AI chip crunch despite capacity expansion

Traders Union
All News
Business & Wealth
Companies
Samsung expects prolonged AI chip

Highlights

Samsung expects AI chip shortages to continue through 2028.
The company is securing multi-year supply agreements with hyperscalers.
Strong AI demand continues to support memory pricing.

Reuters reported that Samsung has signed long-term supply agreements with the five largest global data center companies and is close to reaching similar deals with five more customers. The contracts, which typically run for at least five years, include upfront payments and minimum pricing provisions designed to reduce earnings volatility and support investment in manufacturing capacity.

Long-term contracts reflect a tight AI chip market

Samsung said nearly all of its customers are seeking multi-year supply agreements as demand for high-bandwidth memory (HBM) and other AI-focused chips continues to accelerate. The company aims to secure contracts covering roughly two-thirds of its memory production over the longer term.

Jaejune Kim, executive vice president of Samsung's memory business, told the company it expects semiconductor shortages to become even more severe and extend through 2028. The strategy mirrors a broader industry shift toward long-term supply arrangements as chipmakers seek to reduce exposure to the industry's traditional boom-and-bust cycles.

Samsung also said revenue from its latest HBM4 chips is expected to more than triple in the third quarter, helping it narrow the market share gap with rival SK Hynix in AI memory.

Record chip profits offset weakness elsewhere

Samsung's semiconductor division reported an operating profit of 89.2 trillion won ($61.7 billion) in the second quarter, more than 250 times higher than a year earlier. Group operating profit reached 89.5 trillion won, while revenue climbed 130% to 171.5 trillion won, broadly matching the company's preliminary guidance.

The strong chip business contrasted sharply with Samsung's mobile division, which posted a 700 billion won operating loss as higher memory prices increased component costs.

Despite the earnings beat, Samsung shares closed 0.7% lower, reflecting broader investor concerns that rising AI infrastructure spending may pressure future returns. Those concerns intensified after Meta Platforms reported a 91% decline in second-quarter free cash flow following heavy AI investment.

A new phase for the AI semiconductor industry

Samsung's outlook suggests the AI chip market is shifting from short-term supply constraints toward long-term capacity planning. Multi-year contracts with hyperscale data center operators provide greater revenue visibility while helping finance expensive manufacturing expansion.

The company is also working to strengthen its foundry business, expects improved factory utilization, and remains on schedule to begin operations at its Taylor, Texas, fabrication plant later this year. With AI demand remaining robust and customers committing to contracts lasting at least five years, Samsung believes tight supply conditions are likely to remain a defining feature of the semiconductor market well into the decade.

As we previously reported, Samsung and SK Hynix plan massive AI chip investments in South Korea.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.