Mizuho Identifies 50% Upside Potential in This Overlooked Chip Stock

Samsung Electronics reported impressive results for the second quarter of 2024, causing its shares listed in Korea to surge by over 3.5% on Wednesday.

The tech giant achieved revenue of KRW74.07 trillion and an operating profit of KRW10.44 trillion, showcasing significant growth primarily fueled by heightened demand for memory chips, driven by increasing investments in artificial intelligence from major technology companies.

The Memory division, in particular, experienced considerable gains, with rising demand for High Bandwidth Memory (HBM), DRAM, and SSD products.

Looking ahead, Samsung expects sustained high demand for server products such as HBM, DDR5, and SSDs, bolstered by ongoing AI investments. The company is set to enhance sales of its advanced AI-related offerings, including HBM3E and high-density server modules incorporating its latest 1b nano 32Gb DDR5 technology.

Mizuho’s trade desk analysts remarked that Samsung continues to be their “top long idea.” While they foresee only a modest recovery in Samsung’s smartphone segment this year, they predict upward trends in DRAM and NAND prices.

The analysts anticipate “material upside and growth potential in DRAM” as Samsung begins scaling up production of HBM3e with 8 layers and swiftly moves to 12 layers. Additionally, the tight supply of conventional DRAM for PCs and smartphones is expected to result in strong pricing.

Furthermore, analysts believe that the substantial price-to-book ratio discount of Samsung compared to competitors like SK Hynix and Micron is likely to narrow due to several factors.

These include the expected approval and subsequent sales of HBM3e to Nvidia, as Samsung forecasts a significant increase in production. They predict that HBM3e could account for 60% of all HBM sales by the last quarter of 2024.

Mizuho analysts concluded with a positive outlook on Samsung’s potential to advance quickly to next-generation 12-layer HBM3e, allowing it to potentially outpace competitors and capture meaningful market share by 2025. Their price target for Samsung’s stock is set at 125,000 KRW, indicating a near 50% upside from current levels.