Samsung's Missed Opportunity: Weaker Profit Recovery Amid AI Boom

Samsung Electronics, the world's leading semiconductor and consumer electronics manufacturer, recently reported a weaker-than-expected profit recovery in the second quarter of 2024. While the company's earnings were buoyed by strong demand for generative AI, it missed out on a significant opportunity in the AI chip market, leading to a slower profit recovery compared to its competitors.

Samsung's earnings guidance for Q2 2024 indicated a significant increase in operating profit to 10.44 trillion won, up from 2.43 trillion won in Q3 2023. However, this growth was primarily driven by memory chip price increases, rather than AI demand. The company's delay in high-bandwidth memory (HBM) production for AI chips led to a missed opportunity in the AI boom, as rival SK Hynix capitalized on the sole supply of HBM3 chips to Nvidia. Despite strong demand for AI, Samsung's mobile devices business saw a decline in profitability due to rising costs, including increased memory chip prices.


Samsung's focus on AI in its consumer devices has led to mixed results in profitability. While AI features like generative AI in Galaxy S24 smartphones drove sales and maintained double-digit profitability, the company struggled to keep up with rivals in the supply of top-end chips such as high bandwidth memory (HBM) to AI leader Nvidia. This delay in AI chip supply to Nvidia impacted Samsung's earnings, as it relies heavily on memory chip sales.

Samsung's AI strategy for connected devices, such as smart refrigerators and TVs, aims to enhance user experiences and drive demand. At CES 2024, the company showcased AI-enabled products like the Neo QLED 8K TV, The Music Frame, and the Bespoke 4-Door Flex Refrigerator, demonstrating its commitment to integrating AI across its product portfolio. Samsung's AI advancements, such as the generative AI model Samsung Gauss, have enhanced user experiences and solidified its position as a tech innovator.


However, Samsung's AI strategy must evolve to better capitalize on AI's potential, as seen in its competitors' success. Apple's AI integration in iPhones and Google's AI services have contributed to their respective growth and profitability. Samsung's AI strategy should focus on capitalizing on AI's potential while maintaining a stable income approach that leverages diversification and market opportunities to secure steady returns.

Investors seeking stable profits and cash flows should consider utilities, renewable energy, and the REIT sector over speculative ventures like AI. Funds like the Cohen & Steers Quality Income Realty Fund (RQI) offer stable yields and potential for capital gains, while the XAI Octagon Floating Rate & Alternative Income Trust (XFLT) and REITs like AWP and GOOD provide diversification and adaptability. Reliable income-generating investments, such as Scotiabank, offer high dividends and are supported by strong institutional stability.

In conclusion, Samsung's weaker profit recovery can be attributed to its missed opportunity in the AI chip market and the decline in smartphone sales. While the company's AI strategy has shown promise in enhancing user experiences, it must adapt to better capitalize on AI's potential. Investors should focus on stable, income-generating investments to secure steady returns in the long run.