Samsung's preliminary earnings report tomorrow: Profits expected to surge 18-fold, but risks of memory price hikes and demand backlash are looming.

Samsung Electronics will release its preliminary second-quarter earnings report on Tuesday, July 7. The market generally expects its Q2 operating profit to surge approximately 18 times year-over-year, setting another record high. Meanwhile, SK Hynix will list its ADR on the Nasdaq on Friday, July 10. With these two major events approaching, the Korean semiconductor sector is at a critical juncture for its near-term fate.

According to forecasts from 30 analysts compiled by the London Stock Exchange Group (LSEG), Samsung's Q2 operating profit is expected to be around 86 trillion Korean won (approximately $56.3 billion), with some brokerages predicting as high as 90 trillion Korean won. In comparison, the figure for the same period last year was only 4.7 trillion Korean won—meaning a year-over-year increase of about 17 to 18 times.

This earnings report carries significance beyond Samsung alone—it will serve as the latest signal for the global memory industry's health, directly impacting the trajectory of memory stocks such as Samsung, SK Hynix, and Micron.

Price Surge as the Core Driver

The rise in memory prices is the most direct support for this earnings report.

Citi Research disclosed last week that the average selling prices of DRAM and NAND in Q2 rose by 44% and 53% quarter-over-quarter, respectively. Kim Dong-won, head of research at KB Securities, gave a higher estimate: "DRAM and NAND prices may have increased by 60% quarter-over-quarter, and customer memory demand fulfillment rates in June were only around 50%, with supply shortages intensifying."

He expects Samsung's Q2 operating profit to reach 90 trillion Korean won, with an operating margin as high as 51%.

Structural changes on the demand side are equally critical. According to Reuters, analysts point out that unlike early AI applications mainly focused on large model training, Agentic AI systems perform more complex multi-step tasks, requiring server processors to be equipped with more memory and larger storage capacity to retain and retrieve data during inference. This means that each AI inference request consumes far more memory than the market previously anticipated.

This memory shortage has also directly driven up the stock prices of the three major memory manufacturers. So far this year, the stock prices of Samsung Electronics, SK Hynix, and Micron Technology have surged by 158%, 273%, and 242% respectively, with the market capitalizations of all three companies exceeding $1 trillion.

Bonus Provisions: An Invisible Variable Suppressing Earnings

However, this earnings report is not without risks.

In late May, Samsung reached an agreement with its labor union to avoid a large-scale strike. The agreement stipulates that 10.5% of the operating profit from the semiconductor (DS) division will be used to pay special bonuses to chip division employees. According to Reuters, some analysts estimate that Samsung's cumulative bonus provisions may exceed 40 trillion Korean won.

The timing of accounting recognition for this expense will directly impact Q2 earnings figures.

In other words: If Samsung chooses to recognize these provisions in Q2, the actual reported operating profit may be lower than market consensus. Conversely, if this one-time expense is not included, Samsung's operating profit would have exceeded 100 trillion Korean won for the first time.

Apple's Price Hike: A Warning Signal for Demand Elasticity

On the flip side of rising memory prices, downstream customers are beginning to feel cost pressure—this is the starting point for market skepticism about the sustained health of the memory industry.

On June 25, Apple announced price increases across its Mac and iPad product lines, citing rising memory costs. Upon the news, chip stocks including SK Hynix and Samsung immediately tumbled.

The market's logic is this: If memory prices rise to the point where even Apple has to pass costs on to consumers, then the ceiling for demand elasticity is within reach. Once end consumers resist price increases, tech companies' willingness to purchase memory may shrink accordingly.

According to reports, Apple CEO Tim Cook has even been personally lobbying the Trump administration, hoping to allow Apple to source memory from Chinese memory manufacturer CXMT (Changxin Memory Technologies). In response, the Semiconductor Industry Association (SEMI), representing companies including Samsung, SK Hynix, and Micron, issued a joint letter opposing government intervention and warning: "If the government attempts to address the memory shortage by influencing prices or capacity, the supply pressure brought on by the AI boom will only intensify further."

This battle over memory pricing power has already spread from the market level to political maneuvering in Washington.

Can the Boom Sustain? Nomura Offers a Positive Outlook

Despite the aforementioned concerns, analytical institutions remain relatively optimistic about the short-term outlook for the memory industry.

In a recent report, Nomura Securities predicted that supported by increased demand for consumer storage products and traditional as well as AI data center chips, bulk DRAM prices in Q3 (July–September) will rise by 24% quarter-over-quarter, and NAND prices will rise by 25%.

However, JPMorgan's stance is more cautious. According to Reuters, JPMorgan noted in a recent report that while investors generally believe memory supply and demand fundamentals remain tight, many question whether the rapid increase in AI memory's share of cloud service provider capital expenditure—estimated at 52% this year and projected to exceed 70% next year—is sustainable.

JPMorgan stated, "Investors are seeking clearer evidence that breakthroughs in AI services will translate into faster growth in cloud computing and related AI revenue, thereby justifying the expanding share of memory in AI infrastructure spending."

$2 Trillion Expansion: A High-Stakes Bet at the Peak

Just ahead of the earnings report, Samsung and SK Hynix jointly announced a massive expansion plan.

According to Reuters, the two companies last week pledged to invest 3,200 trillion Korean won (approximately $2.07 trillion) to expand chip production capacity in South Korea. Samsung plans to complete this investment between 2026 and 2040, while SK Hynix did not provide a specific timeline.

The underlying logic: Securing supply dominance in the AI era. Samsung announced in April that it has signed multi-year binding contracts with customers seeking to secure supply, without disclosing customer identities or contract terms.

However, according to U.S. investment channel Barchart, "In a memory industry that is highly sensitive to economic cycles, massive financing for capacity expansion near a potential cycle peak is a classic precursor to a downturn."

Should AI spending slow down, this $2 trillion bet will come under direct pressure.

Anthropic Collaboration and SK Hynix ADR: Two Cards for Sentiment

Beyond fundamentals, two events are providing emotional support for the chip sector.

First, on July 2, foreign media revealed that Anthropic, the developer of the AI model "Claude," is in talks with Samsung Electronics' chip foundry division to produce its self-developed AI chips. The next day, Samsung Electronics' stock surged 8.22%, and SK Hynix rose 10.88%. The significance of this collaboration: If Samsung can extend its customer base from the "Magnificent Seven" (M7) to emerging AI companies like Anthropic, the sources of memory demand will become more diversified, reducing reliance on single major customers.

Second, SK Hynix will list its ADR on the Nasdaq on July 10 under the ticker "SKHY." According to Reuters, the listing aims to raise approximately $29.4 billion, with each ADS expected to correspond to one-tenth of the domestic common stock price, around $166. Underwriters include Bank of America, Citigroup, Goldman Sachs, and JPMorgan, with Citibank serving as the depositary bank.

According to Bloomberg, underwriters are considering a commission rate of about 0.5%, lower than SpaceX's previous IPO rate of 0.67% and also below Wall Street convention.

Market opinions are divided on this. Optimists believe that the ADR listing will make SK Hynix directly comparable to Micron in the same market, potentially driving a valuation revaluation—currently, SK Hynix's 12-month forward price-to-earnings ratio is about 7 times, below Micron's 8–10 times. Pessimists, citing the historical pattern of "financing expansion at the cycle peak," argue that the timing itself is a risk signal.

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