Is Samsung Reaching the Bottom of its Semiconductor Struggles?

Samsung Electronics’ latest earnings report for Q2 2025 has sent shockwaves through the tech industry, with operating profit dropping by 15% to 5.5 trillion won ($3.7 billion)—the lowest in six quarters. While this decline was somewhat expected, the underlying issues, especially in Samsung’s semiconductor division, are sparking concerns about the company’s ability to stay competitive in the AI chip market. Let’s delve into the challenges, potential opportunities, and whether this downturn might present a chance to invest.

The spotlight falls on Samsung’s semiconductor arm, which is fighting to secure contracts for its 12-layer HBM3E chips, considered the industry standard for AI servers. The hitch? These chips have not yet received certification from NVIDIA, while rivals such as SK Hynix and Micron have already inked deals. Without NVIDIA’s endorsement, Samsung’s sales of AI chips are stagnating, despite a surge in demand for data center hardware.

The stakes are high as analysts predict that AI servers will account for 30% of the global HBM market by 2025. Missing out on this segment could result in Samsung losing ground to its competitors permanently. Compounding matters, U.S. trade policies are creating additional hurdles: export regulations are now limiting the sale of advanced chips in China—a crucial market that contributes 33% of Samsung’s HBM revenue.

Aside from its semiconductor division, Samsung’s other businesses like smartphones, TVs, and displays are grappling with escalating logistical costs and the threat of U.S. tariffs. Proposed tariffs on non-U.S.-made smartphones could further erode profit margins. Moreover, Samsung recently lost a significant client, Google, to TSMC, dealing a blow to its aspirations in the AI chip space.

How can Samsung steer its ship through these choppy waters? Two potential lifelines beckon: the planned mass production of sixth-generation 10nm 1c DRAM by the end of 2025. This move could position Samsung favorably in the HBM4 and DDR5 markets critical for AI and high-performance computing. Additionally, reports hint at a prospective partnership with Qualcomm for Samsung’s 2nm process, potentially stabilizing its foundry losses and enhancing its AI chip credibility.

The upcoming release of the Galaxy Z Fold7 and Z Flip7 on July 9 might also tip the scales. These foldable devices, equipped with AI-driven features, could rejuvenate Samsung’s smartphone sales and offset weaknesses in its semiconductor division.

In terms of valuation, Samsung’s stock has grown by 19% year-to-date, trailing behind the KOSPI’s 27% surge. Market sentiments appear to reflect short-term challenges but overlook long-term prospects. Crucial questions loom: Can Samsung secure NVIDIA’s HBM3E orders soon? Will 1c DRAM and 2nm foundry collaborations counterbalance trade-related obstacles?

This juncture presents a risky yet potentially rewarding investment opportunity. Samsung’s stock remains 20% below its 2024 peak, with a stable dividend of KRW 365 per share. Savvy investors might consider this a chance to pounce on the dip, provided that key developments like HBM3E wins and 1c DRAM progress materialize.

In conclusion, a cautious “hold” stance is prudent until Samsung secures significant wins in the AI chip arena or contracts with major players. The risks currently outweigh the rewards, barring steadfast faith in Samsung’s research and development capabilities. As the competition heats up, vigilance is key to navigating Samsung’s turbulent course ahead.