Samsung Investors Want Evidence Profit Boom Has Staying Power

(Bloomberg) -- Samsung Electronics Co.'s earnings will test whether it can convince investors of its long-term outlook, an increasingly critical task as record profits have failed to reinvigorate the stock.

The South Korean tech giant is expected to report its largest-ever quarterly profit on Thursday, but blowout numbers alone may not be enough to reassure investors that memory-chip demand is durable and high product prices can be locked in through long-term contracts.

"It's really about durability versus magnitude of that earnings," said Rob Li, managing partner at the New York-based hedge fund Amont Partners, adding that the market now cares less about quarterly figures and more about the 2027 and 2028 outlook.

Samsung's shares remain about 25% below their June peak even after the company reported record-breaking results in July. The upcoming preliminary report, and details due later in the month, offer a crucial opportunity for Samsung to reignite what has been a lukewarm memory trade.

Samsung and fellow memory-chip leaders SK Hynix Inc. and Micron Technology Inc. ranked among the hottest AI trades earlier in the year. Yet, they lagged behind the broader US tech rebound in the third quarter, even with more favorable valuations.

"While investors appreciate ongoing demand and price strength, they are not convinced about how long these conditions can persist given the industry's history of volatile returns," said Sanjeev Rana, an analyst at CLSA Securities Korea. "Although suppliers argue that earnings are protected by long-term agreements with pre-defined pricing frameworks, investors remain skeptical."

Citing currency headwinds, Morgan Stanley and Citigroup have recently revised down their earnings estimates for Samsung. Still, the world's largest memory chipmaker is projected to report preliminary operating profit of 108.5 trillion won ($80.8 billion) for the quarter ended September on Thursday, according to analysts' estimates compiled by Bloomberg.

That would mark a nearly ninefold increase from a year ago. Revenue is forecast to surge about 134% to a record 201.3 trillion won.

Its chip division is expected to post operating profit of 110 trillion won, offsetting losses at its electronics unit, according to analyst estimates. Samsung is set to release a full financial statement around the end of the month.