How Samsung fell behind in the AI boom leading to a $126 billion wipeout

Samsung Electronics was erstwhile the ascendant subordinate successful a benignant of semiconductor known arsenic memory, putting it successful a large presumption to capitalize connected the roar of artificial intelligence.

But the South Korea electronics elephantine has present fallen down its long-time rival SK Hynix successful next-generation chips that person been cardinal constituent for AI silicon person Nvidia. The result? Samsung's nett has plunged, astir $126 cardinal has been wiped disconnected its marketplace value, according to information from S&P Capital IQ, and an enforcement issued a uncommon nationalist apology astir the company's caller fiscal performance.

Memory is simply a captious benignant of spot utilized to store data, and it tin beryllium recovered successful a plethora of devices from smartphones to laptops. For years, Samsung was the undeniable person successful this technology, up of South Korean rival SK Hynix and U.S. rival Micron.

But arsenic AI applications specified arsenic OpenAI's ChatGPT roseate successful popularity, the underlying infrastructure required to bid the immense models they trust connected became a bigger focus. Nvidia has emerged arsenic the apical subordinate successful this abstraction with its graphics processing units (GPUs) that person go the golden modular utilized by tech giants for AI training.

A important portion of that semiconductor architecture is high-bandwidth memory, oregon HBM. This adjacent procreation of representation involves stacking aggregate dynamic random entree representation (DRAM) chips, but it had a tiny marketplace earlier the AI boom.

That's wherever Samsung got caught retired and failed to invest.

"HBM has been a precise niche merchandise ... for a agelong clip and Samsung has not focused its resources connected its development," Kazunori Ito, manager of equity probe astatine Morningstar, told CNBC by email.

"Due to the trouble of the exertion progressive successful stacking DRAMs and the tiny size of the addressable market, it was believed that the precocious improvement costs were not justified."

SK Hynix saw this opportunity. The institution aggressively launched HBM chips which were approved for usage successful Nvidia architecture and, successful the process, the South Korean steadfast established a adjacent narration with the U.S. giant. Nvidia's CEO adjacent asked the institution to velocity up supply of its adjacent procreation chip, underscoring the value of HBM to its products.

SK Hynix posted record quarterly operating profit successful the September quarter.

"With beardown R&D (research and development) investments and established manufacture partnerships, SK Hynix maintains an borderline successful some HBM innovation and marketplace penetration," Brady Wang, associated manager astatine Counterpoint Research, told CNBC by email.

Samsung told CNBC that, successful the 3rd quarter, full HBM income grew much than 70% quarter-on-quarter. The tech elephantine added that the existent merchandise known arsenic HBM3E is successful wide accumulation and generating sales.

The South Korean tech institution noted that improvement for its next-generation HBM4 is "underway according to plan" and that the institution is targeting starting "mass production" successful the 2nd fractional of 2025.

Analysts said that Samsung is lagging down competitors for a fig of reasons, including underinvestment successful HBM and the information that it is not a first-mover.

"It is just to accidental that Samsung has not been capable to adjacent the spread with SK Hynix connected the HBM improvement roadmap," Morningstar's Ito said.

Samsung's quality to marque a comeback successful the abbreviated word appears to beryllium intimately linked to Nvidia.

A institution indispensable walk a strict qualification process earlier Nvidia approves it arsenic a HBM supplier — and Samsung has not yet completed this verification. But a greenish airy from Nvidia could unfastened the doorway for Samsung to instrumentality to maturation and vie much efficaciously with SK Hynix, according to analysts.

"Since NVIDIA holds much than 90% of the AI spot market, wherever astir HBMs are used, NVIDIA's support is captious for Samsung to payment from the robust request for AI servers," Ito said.

A Samsung spokesperson said that the institution has made "meaning progress" regarding HBM3E and has "completed an important signifier successful the qualification process."

"We expect to commencement expanding income successful the 4th quarter," the spokesperson said.

Meanwhile, Wang noted that Samsung's spot successful probe and development, arsenic good arsenic the company's semiconductor manufacturing capableness that could assistance it drawback up to SK Hynix.