July 15, 2024

The launch of ChatGPT ignited the share prices of companies that produce microchips, the brains of artificial intelligence. Bets are pouring in on the potential of so-called generative artificial intelligence. The most notable example of the rally is Silicon Valley’s Nvidia , the biggest seller of artificial intelligence chips, whose shares are up nearly 200% this year.

South Korean giant Samsung Electronics wants to get in on the action. Best known for its consumer products, Samsung also has the world’s largest memory chip business and the second-busiest semiconductor foundry, making custom microchips for other companies.

According to data provided by CLSA, a Hong Kong investment company, foreign investors bought $8 billion worth of Samsung shares in the South Korean stock market this year. This is already the largest amount of foreign investors’ purchases of Samsung shares since 2000. The surge reversed a sell-off over the past three years, when foreign investors sold more shares of the company than they bought.

At an event in California last week, Samsung detailed what it called its “vision for the age of artificial intelligence.” Samsung believed it could grab market share from leading chipmaker TSMC, but recent trends have shown the opposite. According to market research firm Counterpoint Research, TSMC accounts for about 60% of total global foundry business revenue, while Samsung accounts for only 13% — since 2021, as Samsung customers including Nvidia have shifted business to other regions. , this gap widens further. TSMC.

Samsung said it spent $7.4 billion on its chip business in the first quarter of this year, when its profits fell 95%, some of which it expects to serve the artificial intelligence industry. The company is expanding production at its chip manufacturing base in Pyeongtaek, about 40 miles south of Seoul, and at a chip factory in Texas. Samsung said it plans to work with the government on a $230 billion plan to build a chip-making “megacluster” in South Korea over the next 20 years.

Sanjeev Rana, a senior analyst at CLSA, said the optimism was linked to Samsung’s memory chip business, which on average accounts for about half of the company’s operating profit each year.

Servers built for AI can require four times as much memory (called DRAM) as traditional servers (the hardware that underpins desktops and databases). Samsung holds about 45% of the global DRAM market. Mr Rana added that it was the only major memory company investing in increasing production, despite a sharp drop in memory prices industry-wide.

The chip industry is known for its boom and bust cycles. Chipmakers began one of the worst recessions in years last fall after demand for memory chips surged during the pandemic. Samsung’s memory chip rivals, including Micron Technology of the United States and SK Hynix of South Korea, said they would cut production investments this year.

Some analysts believe Samsung’s downcycle spending will pay off in the long run when the memory industry recovers, thanks in part to AI.

“If demand picks up, they will be well prepared,” Mr Rana said.

But skeptics question whether Samsung can play the integral role in generating artificial intelligence that it has played in smartphones and high-definition televisions. Last year, Nvidia lost out when it chose SK Hynix as a supplier of high-performance memory chips. The chip is expected to be a fast-growing business line due to its prominence in future AI servers.

SK Hynix controls about 50 percent of the high-bandwidth memory (HBM) market, while Samsung controls 40 percent, according to market research firm TrendForce. Shares of SK Hynix have risen more than 50 percent this year, outpacing Samsung’s 30 percent gain.

Samsung said it had started offering a competing version of HBM to “major customers”. It added that the next generation of HBM will be launched this year.

Samsung’s lag in HBM technology could be a symptom of wider problems, said Nam Hyung Kim, an analyst at stock research firm Arete Research. Micron also surpassed Samsung in technology for DRAM and NAND flash, another type of memory, Kim wrote in a February note.

“The problem with Samsung is they always want to be big,” Mr Kim said. “They’re spending so much money, but they’re not leaders in technology anymore.”

Mr Kim said Samsung should spend more on research and not worry too much about market share. “Samsung is bigger than Apple in the smartphone space,” he said. “But how many people think that Samsung makes a better smartphone than Apple?”

Samsung said in a statement that it has achieved success in multiple aspects of advanced semiconductor technology and can provide customers with “comprehensive solutions” in the field of growing artificial intelligence and other technologies.

Samsung’s own executives offered a more sober diagnosis.

In May, Kyung Kye-hyun, president of Samsung’s semiconductor division, admitted in a speech to university students that the company was “behind” TSMC by as much as two years.The statement was widely circulated on the Internet korean mediaIt’s a rare acknowledgment for a company that has long prided itself on its technological leadership.

Mr Kyung went on to vow that by 2028, Samsung’s memory chips would be the “core” of artificial intelligence supercomputers. “We can overtake TSMC in five years,” he said.

Kim Woo Young contributed to the report.

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