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Samsung Q4 Earnings Expected to Be Hit by Nvidia AI Chip Supply Delay

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Samsung Electronics (005930.KS), the world’s largest memory chip maker, is forecasted to report slowed profit growth in the fourth quarter, as it struggles to meet Nvidia’s (NVDA.O) soaring demand for AI chips. Despite an expected operating profit of 8.2 trillion won ($5.6 billion) in the quarter ending December, up from 2.8 trillion won a year ago, this figure represents a decline from the previous quarter’s 9.18 trillion won.

Analysts have recently revised their earnings forecasts downward, with some projecting Samsung’s operating profit to fall below 8 trillion won. A key issue has been delays in Samsung’s supply of high-end AI chips to Nvidia, which has continued to impact Samsung’s earnings, despite an October apology from the company for its third-quarter performance and an earlier pledge to address the chip shortage.

In November, Samsung reshuffled its chip division leadership, naming its chip division chief co-CEO and granting him direct control over the struggling memory chip business. Meanwhile, Samsung’s shares fell 32% last year, underperforming the broader market’s 10% decline.

Contrastingly, SK Hynix (000660.KS), a major supplier of advanced AI memory chips to Nvidia, is expected to report record earnings for the fourth quarter, benefiting from strong demand for its products.

The broader semiconductor market is facing additional pressure, with weaker demand for traditional chips used in smartphones and PCs, and rising competition from Chinese chipmakers, leading to declining chip prices. DRAM prices, particularly DDR4 chips used in personal computers, have dropped as much as 13% in Q4 and are expected to fall another 15% in the current quarter, according to TrendForce.

The South Korean won’s depreciation in December to its weakest level in 15 years, fueled by political instability and concerns over U.S. tariffs under President-elect Trump, has provided some relief in the form of increased overseas earnings, but this has not been enough to offset weak chip prices.

Samsung is expected to release detailed results later in January, offering a breakdown of its earnings by business segment.

Chip Stocks Decline as ASML’s Weak Outlook Sparks Concerns Over Non-AI Chip Demand

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Semiconductor stocks in both the U.S. and Asia took a hit after ASML (ASML.AS), a prominent chip equipment maker, cut its annual sales forecast due to weak demand for non-AI chips. Despite strong demand for AI-related chips, such as those produced by industry giant Nvidia (NVDA.O), the broader semiconductor market is experiencing a slower recovery. This news sent ripples through the sector, dragging down major chip stocks.

Key Losses Across the Sector

Nvidia, which had recently surpassed Apple as the world’s most valuable company, saw a 4.5% drop in its stock price, wiping out approximately $158 billion from its market cap. This widened the gap with Apple, whose value sits at $3.56 trillion. Other major chip firms such as AMD (AMD.O), Intel (INTC.O), Arm, Broadcom (AVGO.O), and Micron (MU.O) fell between 3.2% and 5% by Tuesday’s close. The Philadelphia SE Semiconductor Index dropped nearly 5%, further weighing down the tech-heavy Nasdaq.

The sharp decline followed an apparent error by ASML, which prematurely released its quarterly results, revealing weak bookings and slower-than-expected recovery in chip demand, particularly outside the AI sector. This led to a 16% plunge in ASML’s U.S.-listed shares.

AI Demand vs. Broader Market Weakness

While the demand for AI chips continues to surge, fueled by growing interest in artificial intelligence and machine learning applications, other segments of the chip market remain tepid. Logic chip makers are delaying orders, and memory chip manufacturers are planning only limited new capacity expansions, which signals ongoing weakness in non-AI chip demand.

“ASML’s fat finger error isn’t cause for concern in itself, but the content of the release didn’t make comforting reading for investors,” noted Derren Nathan, head of equity research at Hargreaves Lansdown.

Asian Chipmakers Also Hit

Asian semiconductor companies, many of which are customers of ASML, also suffered losses. Taiwan Semiconductor Manufacturing Co (TSMC), Samsung Electronics, and SK Hynix all saw stock declines ranging from 2.2% to 2.5%. This further underscores concerns that the non-AI chip sector is slowing down, with chip factories having stabilized after racing to build extra capacity during the pandemic.

Samsung, which had earlier warned of disappointing third-quarter profits due to struggles in capitalizing on AI chip demand, continued to face pressure. On the other hand, TSMC, which supplies Nvidia, is expected to report a 40% jump in third-quarter profit, showcasing a more optimistic outlook for companies directly tied to AI chip production.

Geopolitical Tensions and Export Controls

Adding to market concerns, Bloomberg News reported that U.S. officials are considering placing a cap on AI chip export licenses to certain countries, particularly in the Persian Gulf. The move is driven by national security concerns that advanced American chips could be indirectly acquired by China, circumventing existing trade restrictions.

Danni Hewson, head of financial analysis at AJ Bell, remarked, “With the AI revolution expected to play such a huge part in upping productivity and enabling other technological advances, it’s not surprising the U.S. wants to do what it can to maintain its dominance.”

The combination of weak non-AI chip demand and increasing geopolitical tensions highlights the delicate balance chipmakers must navigate as they grapple with shifting market dynamics.