Samsung Posts Record-High Earnings, But Concerns Loom Over Sustainability of AI Investments

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Driven by the AI semiconductor boom, Samsung Electronics has once again posted record-high earnings. Samsung projected that the semiconductor supply shortage will continue until the year after next. While global big tech companies also reaffirmed their plans to expand AI investments, concerns remain over whether such heavy spending can be sustained.

Reporting from Jeong Seong-jin.

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Samsung Electronics reported a record-breaking performance for the second quarter of this year, with revenue reaching 171.5 trillion KRW and operating profit hitting 89.5 trillion KRW.

What drove these earnings was, once again, semiconductors.

The semiconductor division recorded an operating profit of 89.2 trillion KRW, accounting for over 99 percent of the total.

On the other hand, finished product divisions such as mobile and home appliances saw a 14 percent increase in revenue, but suffered an operating loss of 800 billion KRW.

This marks the first deficit in history, driven by the so-called chipflation caused by soaring semiconductor production costs.

Samsung forecasted that the semiconductor supply shortage will worsen next year and persist through 2028.

As the basis for this outlook, the company noted that long-term supply contract requests from global big tech firms continue to pour in, stating that up to 70 percent of its total production capacity could be locked into long-term contracts.

[Kim Jae-jun / Executive Vice President and Head of Memory Marketing Team, Samsung Electronics (Q2 Conference Call): We have already completed contracts with the top five global data center customers, and we are in the final stages of negotiation with five additional major customers related to AI demand.]

Global big tech companies also reaffirmed their expansion of AI investments, underpinning robust semiconductor demand.

Microsoft and Meta reported that their capital expenditures allocated for AI investments and other areas surged by 69 percent and 83 percent, respectively, compared to the previous year, with each investing around 50 trillion KRW.

However, signs of vulnerability were also identified.

Meta's free cash flow shrank by more than 90 percent compared to a year earlier.

Most of the cash generated from operating activities was funneled into AI investments.

With Google parent Alphabet's free cash flow also previously turning negative, questions are being raised about the sustainability of these investments.

[Park Sang-hyun / Research Fellow, iM Securities: Recently, big tech companies making investments is ultimately being perceived as taking on borrowings, which suggests they continue to keep debt-related risks in mind...]

Although the U.S. Federal Reserve held interest rates steady this time, the possibility of future rate hikes remains, meaning market concerns surrounding big tech's burden in financing AI investments are expected to persist.

(Video Editing: Kim Jun-hee, Design: Choi Jin-hoe)
※ Please note: This article was translated by AI and may contain errors.