Samsung has staged a stunning comeback

Not long ago Samsung Electronics was in the doldrums. In 2024 the South Korean giant apologised for failing to maintain “technological competitiveness” and “falling short of the market’s expectations”. It has no need for contrition these days. This month its market value, which has soared by 400% in the past year, hit $1trn for the first time, propelled by furious spending on artificial-intelligence infrastructure. In the first quarter of 2026 its operating profit rose to 57trn won ($38bn), more than eight times as much as a year before. Analysts expect profits to keep rising at a blistering pace, thanks in particular to the seemingly insatiable demand for its advanced memory chips.

Samsung Electronics manages a wide portfolio of products, making everything from fridges to phones. Increasingly, however, its business centres on chipmaking. Semiconductors accounted for 61% of sales and 94% of operating profits in the first quarter. It is one of just three firms capable of making at scale the memory chips needed for AI, alongside SK Hynix, a South Korean rival, and Micron, an American one. The number of memory chips Samsung sold in the first quarter was up by about 20% on the preceding three months, but the average selling price rose by 90%. The firm boasts that memory-starved buyers are approaching them to demand long-term purchase agreements. It foresees the shortage lasting well into next year.

Samsung is expanding capacity, but relatively slowly. A new facility will start mass-producing chips for sale later this year, and the firm will begin building another, which will cost it some $55bn, in July. Yet that factory, known as P5 Fab 2, will not be ready until 2030. And although capital expenditure is set to rise by 55% this year, according to Daniel Kim of Macquarie, a bank, it is falling as a share of revenue.

Samsung’s management, perhaps unsurprisingly, continues to display caution. Chipmaking factories are enormously expensive and take years to complete, resulting in a historical cycle of booms and busts. The company will not want a repeat of the last flash-memory boom-bust cycle, when it overbuilt capacity as demand surged, then saw its operating profit fall by half in 2019, notes Jukan Choe of Citrini Research, a firm of analysts.

Meanwhile, Samsung is also expanding its foundry business, which manufactures chips designed by others. A new fab in Texas, catering to American customers, will open this year. The loss-making division has long trailed TSMC, the Taiwanese industry leader, and suffered in recent years from complaints of inconsistent execution. A larger customer base has allowed TSMC to gain scale and know-how, creating a self-reinforcing advantage.

But the AI boom is aiding Samsung’s foundry efforts in two ways. First is that TSMC is booked to the brim. That has already pushed some customers towards Samsung, including Tesla, a carmaker, and Qualcomm, a chip designer. Second is that fat profits in the memory business mean the company has more cash to invest.

Yet the success of the memory division has created other problems. Soaring prices have damaged Samsung’s once-thriving consumer-electronics business. Margins are being squeezed in the smartphone division; it may post a loss this year. Political trouble is also brewing. On May 11th Kim Yong-beom, an adviser to Lee Jae Myung, South Korea’s president, proposed a “national dividend” to redistribute chipmaking profits to citizens. Mr Lee has since said only excess tax revenue from the chip boom is being considered, not a new tax.

A coalition of Samsung unions is also demanding that 15% of the memory division’s profits be distributed to workers, similar to an arrangement already in place at SK Hynix. They are threatening a multi-week strike beginning on May 21st, which would cost Samsung some 30trn won. (Ironically, union members also lambasted Samsung for failing to capitalise on the AI boom during a strike in 2024.) The problems of success may feel like a welcome change for Samsung’s bosses. But they are problems nonetheless. ■