Mizuho sees 50% upside potential in this forgotten chip stock

Samsung Electronics (KS:005930) reported strong Q2 2024 results, sending its Korea-listed shares rising more than 3.5% Wednesday.

The electronics behemoth posted revenue of KRW74.07 trillion and an operating profit of KRW10.44 trillion, representing strong growth mainly driven by increased demand for memory chips due to rising AI investments from major tech companies.

The Memory sector benefited significantly, with heightened demand for High Bandwidth (NASDAQ:BAND) Memory (HBM), DRAM, and SSD products.

Samsung anticipates continued high demand for server products like HBM, DDR5, and SSDs, driven by ongoing AI investments. The company plans to boost sales of advanced AI-related products, including HBM3E and high-density server modules utilizing its latest 1b nano 32Gb DDR5 technology.

Commenting on the report, Mizuho trade desk analysts said Samsung remains their “top long idea.”

While expecting a limited recovery in Samsung’s smartphone business this year, Mizuho predicts DRAM and NAND prices will trend higher.

The analysts see "material upside and growth potential in DRAM" as Samsung begins to ramp up production of HBM3e with 8 layers and quickly transitions to 12 layers. Moreover, the supply of conventional DRAM for PCs and smartphones is tight, leading to strong pricing expectations.

Analysts also believe the major price-to-book discount of Samsung compared to peers SK Hynix and Micron (NASDAQ:MU) could narrow due to several catalysts.

These include the anticipated approval and sale of HBM3e to Nvidia (NASDAQ:NVDA), given Samsung's forecast for a significant production ramp-up. The analysts expect HBM3e to make up 60% of all HBM sales by the fourth quarter of 2024.

“Quick move to next-gen 12L HBM3e with potential to get ahead of MU / Hynix and gain material share in CY25,” they added.

Mizuho’s price target for the stock stands at 125,000 KrW, implying a nearly 50% upside from current levels.