Samsung Soars 7% on $16.5 Billion Tesla Chip Deal, Analysts Eye Potential for Broader Partnerships

TradingKey - On Monday, Samsung Electronics announced a deal with Tesla worth approximately $16.5 billion for chip manufacturing services, a move confirmed by Elon Musk on social media platform X. 

Musk stated that Samsung's Texas facility will be dedicated to producing Tesla's next-generation AI6 chip, highlighting its strategic importance. He also pledged personal involvement to expedite production.

Historically, Samsung has lagged behind TSMC and SK Hynix in AI chip manufacturing, with tech giants such as Apple, Nvidia, and Qualcomm being TSMC's clients. According to TrendForce, TSMC's share of the global chip foundry market was 67.6% in Q1 2023, while Samsung held a mere 7.7%.

Previously, Samsung's HBM chips failed to gain Nvidia's certification, precluding sales to the company and leading to an anticipated halving of Q2 profits. Analysts have suggested that due to a shrinking client base in recent years, Samsung's chip foundry division may record losses exceeding 5 trillion won in the first half of the year.

Kiwoom Securities analyst Pak Yuak noted that the Tesla order could mitigate Samsung's foundry business losses. Research indicates that this contract, extending through 2033, could boost revenue by around 10% annually for Samsung's chip foundry sector and potentially lead to further collaborations with other firms.

However, TrendForce analysts caution that the chip's design-to-production cycle spans 1-2 years, limiting any immediate revenue impact for Samsung and maintaining elements of uncertainty.

Following the news, Samsung shares in Seoul closed up 6.8%, at 70,400 won per share, marking their highest level since September last year.