Samsung stock is both expensive and undervalued: what an investor should do about this paradox

On Ma. 6, the capitalization of Samsung Electronics for the first time exceeded $1 trillion on the Seoul Stock Exchange. This is the second Asian company, after Taiwan's TSMC, to overcome such a serious milestone. Since the beginning of the year, quotes of the Korean giant have more than doubled, and for the year - increased almost five times. Naturally, questions arise: how much such growth is justified, how long it will last and what risks are inherent in potential investments in the company's shares. Independent analyst Mikhail Zavaraev answers.

Samsung's entry into the elite "trillionaires' club" is by no means accidental. After all, only three of the 13 companies in the world (Saudi Aramco, Walmart and Berkshire Hathaway) with a capitalization above $1 trillion are not directly related to the field of artificial intelligence, where investments are growing rapidly. Their size in the U.S. alone will be about $700 billion in 2026.

According to various estimates, "memory" accounts for at least 30% of the cost of data centers, and in the near future this share may grow even more - due to the shortage of semiconductors and the continuing rise in semiconductor prices. Samsung is just one of the few technologically advanced manufacturers of memory chips.

Such a favorable situation could not but affect the financial results of the Korean company this year: at the end of the first quarter its total revenue soared by 69% year-on-year to 133.9 trillion won (the forecast was 117.5 trillion won), operating profit - by more than 750% to 57.2 trillion won. The memory chip maker's operating profit for the year jumped 49 times to 53.7 trillion won.

That's really impressive, especially when you consider that Samsung's financial results haven't looked the most outstanding until recently. Specifically, the company's revenue grew only 10.4% from 2022 to 2025, with most of that growth coming in the second half of 2025. The company's net income has remained below the 2022 level for the last three years.

Samsung launched its next-generation chips, HBM4, (high-bandwidth memory) in the first quarter to continue to maintain its leadership in this segment. The company's revenue growth will also support the production of updated CPU and GPU processors.

Samsung expects demand for memory chips to remain very strong in the second quarter of 2026 and even strengthen in 2027, which could lead to further price increases for these products.

In the past quarter alone, the price of DRAM (dynamic RAM) has soared 90%, and spot prices have increased sevenfold. Chae Dae-won, head of SK Hynix, one of Samsung's key competitors, predicts that the "memory" shortage will continue through 2030, and that manufacturers can physically meet only 60% of potential consumer demand through 2027. This not only pushes prices up, but also forces companies to switch to more expensive segments such as HBM.

As a result, Samsung finds itself in a difficult situation. Rising prices for chips lead to higher production costs in many other segments: for example, in the production of smartphones, and, consequently, to lower sales in them. The share of "memory" in the production cost of mid-priced smartphones has already reached about 40%.

This state of affairs will inevitably hit Samsung's cell phone production. Korean publication Money Today wrote that in 2026, this division of the company may show the first annual loss in its history.

Thus, according to current forecasts, the company's revenue will almost double in 2026, and in 2027 it will increase by another 19%. Such rapid growth will inevitably translate into a staggering increase in profits.

Thus, the company's earnings per share may grow from 6.6 thousand won in 2025 to 43.5 thousand won in 2026 and by another 17% in 2027. A significant slowdown in EPS growth at Samsung in 2027 will be caused, among other things, by the need to increase its own capital expenditures.

And here we come to the most interesting question: how expensive Samsung shares remain after the skyrocketing of quotations.

If you look at multiples that rely on historical operating performance, the conclusion is clear: Samsung stock is definitely very expensive.

- So, the P/E for the last 12 months at 40.7 is very high, especially since it was only 11-12 at the beginning of 2025.

- The P/B ratio (which shows how much investors are willing to pay per currency unit of a company's net assets) is 4.2, about three times higher than the five-year average for Samsung(1.4).

- The current EV/EBITDA multiple is 16.4, compared to the 5-year average of 5.1.

But the problem is that all of these numbers don't take into account the expected rapid income growth in the coming years.

If we turn to the forward-looking P/E multiple, it is around 6.6, which clearly contradicts the claim that the company is expensive. For example, Samsung was trading at 9.4-13 on this metric in the first quarter of 2025.

According to the PEG ratio, which shows the company's valuation taking into account its growth, Samsung is trading at 0.15. In theory, this means that the Korean manufacturer is severely undervalued, which means that its securities have a very significant upside potential.

But to realize this potential, Samsung needs to show impressive growth rates not just this year, but over a much longer horizon.

And this growth depends largely on how effective the current, very substantial, investments in AI turn out to be. If they fail to justify themselves, hyperscalers' capital expenditure plans will be cut back as rapidly as they have grown in the recent past.

This will very quickly impact the entire AI value chain, especially the businesses of companies that are now capitalizing on the presence of the "narrow bottle necks" of the AI revolution.

One should not discount the growing competition in the semiconductor sector, for example, from Chinese companies. Yes, not all memory chip manufacturers are as efficient and technologically advanced as Samsung or SK Hynix, but competition, firstly, does not stand still, and secondly, if the most efficient solutions become very expensive, consumers will switch to cheaper, albeit less technologically advanced, analogs.

Plus, the current euphoria and shortages will very likely eventually lead to overproduction and falling prices and margins in the future, which has happened many times before in the memory vendor sector.

Among the shorter-term risks for Samsung are possible problems with the expansion of HBM production and a more significant slowdown in revenue from its cell phone division. These include potential tax and regulatory changes: Kim Young-bom, a senior official in the South Korean presidential administration, for example, recently floated the idea of redistributing some of the profits of Korean chipmakers.

But all of these factors could lead to a time-limited correction in quotes, compared to how devastating a significant slowdown in AI investment could be for Samsung's capitalization.

The current upside for the company's shares, judging by analysts' consensus, is 11.7% (as of Ma 13). This is a growth potential, which may well be realized in one day (on Ma 6, the company's shares rose by almost 15% in one day).

The target price for such a fast-growing company is hardly the best benchmark. It was only slightly above 70,000 won for most of the first half of last year, which didn't stop the company's stock from approaching 300,000 won a year later.

It's worth keeping in mind that the situation could change pretty quickly, and in a year or two, Samsung's share price could well fall to the 100k won level if the market becomes disillusioned with the return on investment in AI.

Investing in high-growth companies is always very risky, and even if you're an AI optimist, it's hardly worth investing more than 3-5% of your portfolio in Samsung, albeit a fairly promising company at the moment.

Does not constitute an investment recommendation.

This article was AI-translated and verified by a human editor