Samsung Electronics will lag smaller memory chip rival SK Hynix by the most in a decade as investors bet on the latter becoming a winner in artificial intelligence. It is understood that as SK Hynix reached a supply agreement with Nvidia (NVDA.US) for high-quality high-bandwidth memory chips, the company surged 67% this year, overwhelming rival Samsung's 24% increase. Judging from options data, this gap may widen further. Options data shows Samsung's put/call ratio is more than twice that of SK Hynix.

In fact, the AI ​​battle is taking place against the backdrop of weak global demand for the two companies' traditional memory products, in large part as smartphones are mired in what could be the worst industry-wide recession in more than a decade, hurting Samsung's other major source of revenue.


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Currently, chips in general are still hot due to surge in demand for products required for generative AI services such as ChatGPT. The Philadelphia Semiconductor Index is up 31% this year, outpacing nearly all benchmarks.

While Samsung could also offer foundry chip manufacturing services to capitalize on that growth, the company also missed out because TSMC dominates the foundry business, producing most of the AI ​​processors designed by Nvidia and others.

Therefore, after leading the memory industry for many years, Samsung now needs to catch up when it comes to HBM. It is reported that HBM is an advanced technology optimized to work with artificial intelligence accelerators. The technology features a DRAM stack placed on top of the processor instead of in a separate memory module, allowing for faster data transfer.

However, SK Hynix is ​​more of a "pure" memory maker than its diversified peers, and it was able to get a head start on the latest generation of chips, winning Nvidia as its HBM3 customer. Samsung is reportedly having trouble signing contracts with the US artificial intelligence giant, even though it has developed a new HBM3E chip and said it plans to launch HBM4 by 2025.

Analyst Views

Yoon Joonwon, a fund manager at DS Asset Management, said: "It's a very unfamiliar scenario for Samsung to lag behind SK Hynix in HBM development, and everyone is focused on artificial intelligence because that's the only area where we see strong demand."

Yoon believes that acquiring customers such as Nvidia or AMD is the key to Samsung's stock price. Other observers point to yield, or the number of high-quality chips produced from each batch of material, as a major concern for investors.

Analysts will be watching these takeaways closely when the company reports earnings later this month. Samsung's latest preliminary results showed a smaller decline in quarterly profit.

The two companies have similar buy ratings and no sell ratings, according to the data. However, the market generally believes that the target price of Samsung's stock price will increase by more than 30% from current levels in the next 12 months, while SK Hynix's increase will be around 20%.


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Market observers such as Eugene Investment & Securities analyst Lee Seung-Woo believe that the leadership of artificial intelligence may change in the future, but not soon.

Lee said: "Samsung will not lag behind forever, and Samsung may start launching the next generation HBM3 within this year, which will shorten the interval to about 4 to 5 months. SK Hynix will continue to maintain its lead, but Samsung will close the gap next year." The analyst gave Samsung a "buy" rating.

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