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Samsung’s Stock Is Signaling a Bottom for the Global Chip Market

Investors have grown increasingly bullish on Samsung Electronics Co. ahead of its Tuesday results report, betting that the global memory-chip cycle is near a bottom.

The company’s shares have rallied 24% this year, overcoming three straight quarters of disappointing earnings and delayed shareholder return improvement on hopes for an end to the years-long semiconductor downcycle. That’s left some punters questioning how much upside can be left amid concerns including the U.S.-China trade war and South Korea’s spat with Japan.

“The stock may face a short-term correction after the earnings announcement, as the expectation of a rebound in earnings has already been priced in,” said Heo Pil-Seok, chief executive officer at Midas International Asset Management. “Still, from a medium-term perspective, we have confirmed that the semiconductor industry has reached a bottom.”

Shares of Samsung fluctuated Monday, ahead of the company’s preliminary third-quarter results on Tuesday. Analysts estimate it will post operating income of 6.9 trillion won, compared with the record 17 trillion won it reported a year earlier.

While most of the disappointment has been due to declining prices for memory chips, which account for nearly 80% of the company’s operating income, there have been some signs of improvement recently. Spot prices for 4GB DRAM chips fell 0.8% in the third quarter, less than than the 24% drop in the previous quarter.

“The situation in the global memory-chip industry seems to be good, and I guess the third-quarter earnings will be slightly better than the current market consensus,” said Lee Jin-Ho, a fund manager at Eugene Asset Management in Seoul.

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