Samsung's Chip Profits Skyrocket as AI Demand Sparks Supply Crunch through 2027

Samsung Electronics 005930 reported a staggering increase in operating profit for its chip business in the first quarter, driven largely by demand from AI data center expansions. The memory chip unit's earnings soared to 53.7 trillion won ($36.15 billion), a sharp leap from just 1.1 trillion won year-over-year.

This phenomenal growth accounted for 94% of Samsung's total quarterly operating profit of 57.2 trillion won, underscoring how central chips have become to the company's bottom line. Total revenue climbed 69% year-on-year, reaching 133.9 trillion won.

However, the chipmaker painted a challenging picture ahead, warning that supply shortages seen in 2026 are set to intensify next year as AI-related demands outpace manufacturing capacity. According to Kim Jaejune, a key executive in Samsung's memory chip division, the gap between supply and demand is poised to widen substantially in 2027.

In an attempt to secure supply lines, Samsung has inked multi-year binding agreements with undisclosed clients, ensuring some stability amid the surge in demand driven by AI accelerators, especially those utilized by Nvidia's platforms. Yet, the chip industry continues grappling with capacity constraints, partly due to the shift toward producing high-bandwidth memory (HBM) chips required by AI workloads.

While Samsung recently began mass production of its HBM4 chip series and expects a threefold revenue increase in this segment compared to last year, it still trails behind competitors like SK Hynix in this vital area. The South Korean rival reported its own record profits and sees the booming chip cycle carrying on for longer.

Besides production hurdles, Samsung's mobile and display businesses are feeling the pinch from rising component costs. The mobile division's profits dropped 35% in Q1, and the display unit saw a 20% decrease in operating income compared to the previous year, highlighting the cost pressures in other segments.

The ongoing geopolitical tensions in the Middle East haven't disrupted Samsung's chip production, thanks to strategic inventory management and sourcing diversification. Nonetheless, the company flagged rising oil prices as a factor that could hike transportation costs and emphasized cooperation with South Korean authorities to maintain stable power supplies.

Tensions loom on another front as unions representing Samsung's chip workers consider strike action over pay disputes, which could threaten production continuity. Samsung has pledged to mitigate any disruptions through dedicated response strategies.

Shares of Samsung experienced a slight dip following the earnings release, pulling back after an initial intraday gain. Market observers noted this likely reflects investors taking profits after a strong rally this year, not a change in the company's longer-term outlook.