Memory Companies are Having a Bad Year, But an AI Silver Lining Emerges

Sales and profits of memory chip manufacturers have been trending downward lately as sky-high demand driven by the COVID-19 pandemic started to dwindle in 2022. However, interest in these companies and their stocks could witness a resurgence as a new demand driver emerges amid the current AI craze.

Memory Chipmakers Grappling With Waning Demand, But AI Could Come to the Rescue

Stock prices of memory chip manufacturers have faced mounting challenges recently compared with their 2022 peaks. This decline has been attributed to a growing stockpile of inventory stemming from the diminishing demand.

However, a new demand catalyst has arisen thanks to the unprecedented boom in the AI sector. Notably, the biggest makers of AI chips, like Nvidia (NASDAQ: $NVDA), have been switching to a new computer memory interface known as High Bandwidth Memory (HBM), enabling significantly faster data transfers. 

According to research firm TrendForce, global demand for HBM chips is projected to surge by 60% year-over-year in 2023 and by an additional 30% next year. Currently, South Korean semiconductor company SK Hynix is the only company producing the most advanced generation of HBM chips – one factor behind its strong stock price ascent this year.

But other industry giants are also trying to gain from the skyrocketing demand for AI chips. One of these companies is the electronics giant Samsung, which, according to analysts, is estimated to see 10% of its DRAM revenue represented by HBM sales in 2024. 

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Samsung Operating Profit Down 78% in Q3, But Potential Upside Remains

Expectations that the new HBM chips could revive the demand for global chipmakers could lead to a much-needed boost to these companies’ sales and, consequently, their stock prices.

As the coronavirus pandemic-driven demand levels began to cool down in 2022, memory chip prices have plunged more than 50% since their peaks. Last week, Samsung said in a preliminary earnings report that its operating profit slumped 78% in Q3 from a year ago. However, it tripled quarter-over-quarter. 

Because of this, Samsung recorded limited gains in the stock market, climbing around 22% year-to-date. But, if the South Korean tech behemoth can leverage the HBM demand like its compatriot SK Hynix, it would open up fresh upside to the company’s stock. 

In your opinion, which company will dominate the AI chip market in the long term? Let us know in the comments below.