Samsung Electronics 2Q26 preliminary results in line with expectations, but memory earnings recovery is strong

Overview

This report reviews Samsung Electronics' 2Q26 preliminary results from Morgan Stanley. The report believes that while the company's 2Q26 results appear to be in line with market consensus, underlying earnings quality was strong, particularly as the memory business benefited from higher DRAM/NAND prices and delivered a significant profit recovery. The company's share price has risen 165% year to date, outperforming the KOSPI's 91% gain, but the analysts believe it has not yet fully reflected the magnitude of future earnings growth.

Core views

The core view is to maintain Samsung Electronics as Overweight and a Top Pick. 2Q26 operating profit of W89.4tr was in line with consensus expectations, while memory profit approached W92tr and the operating margin reached 52%, indicating that the company is in a strong profit recovery cycle. Based on a 56% DRAM ASP estimate for 2Q26, Morgan Stanley expects memory profit to grow by more than 1,100% year over year in 2026 to nearly W412tr. The compute-to-power advantages of advanced DRAM and logic base die nodes, upcoming long-term agreements, and unprecedented capacity constraints should improve earnings stability and predictability.

Analysis framework

The report primarily combines earnings decomposition, cycle analysis, and a valuation framework. It first breaks down 2Q26 performance across revenue, operating profit, memory, foundry/LSI, mobile/appliances, and display, then assesses the implications for the share price based on DRAM/NAND pricing, AI and hyperscale data center demand, capacity constraints, and capital return potential. For valuation, it uses a residual income model and references a 2027e P/B multiple of approximately 2x, consistent with the stock's peak multiple during the commodity cycle.

Methodology notes

• Valuation methodsresidual income valuation model

  Residual income valuation model

  Morgan Stanley's target price is derived from a residual income valuation model. At the target price, 2027e P/B is approximately 2x, consistent with the stock's commodity-cycle peak of approximately 2.0x. The model assumes a cost of equity of 11.5%, a beta of 1.0, and a perpetual growth rate of 3%.

• research_modelMorgan Stanley ModelWare

  Morgan Stanley ModelWare framework

  The report states that, unless otherwise noted, all metrics are based on the Morgan Stanley ModelWare framework.

• consensusRefinitiv Estimates

  Consensus estimates

  The report discloses that consensus estimates are provided by Refinitiv Estimates and distinguishes them from Morgan Stanley Research estimates.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Samsung Electronics (005930.KS)

  Covered company and core investment target

  Strengths

  Strong memory pricing, high DRAM/NAND margins, AI and hyperscale data center demand supporting an extended cycle, compute-to-power advantages in advanced DRAM and logic base die nodes, and potential long-term agreements improving earnings predictability.

  Weaknesses

  The mobile and appliances businesses may post modest losses, foundry/LSI remains loss-making, and earnings growth is highly concentrated in semiconductors.

  Comparison

  The share price has risen 165% year to date, outperforming the KOSPI's 91% gain. The report believes that despite the significant increase, the share price has not yet fully reflected the magnitude of earnings growth ahead.

  Risks

  A weaker-than-expected memory cycle, intensifying smartphone competition, competition from Apple and new Chinese smartphones, and excessive concentration of semiconductor earnings could all weaken the upside thesis.

• GRAIL INC (GRAL.US)

  Disclosed related company

  Strengths

  Plans to advance a strategic partnership with Samsung C&T and Samsung Electronics to introduce the Galleri multi-cancer early detection test to major Asian markets.

  Weaknesses

  The transaction remains subject to definitive agreements, customary closing conditions, and regulatory approvals.

  Comparison

  Not a primary covered security in this report; it mainly appears in disclosures concerning conflicts of interest and advisory relationships.

  Risks

  The partnership may not ultimately be executed, or regulatory approval may remain uncertain.

Key data

• 2Q26 revenueW171trUp 129% year over year and 28% quarter over quarter, driven by strong memory pricing.
• 2Q26 operating profitW89.4trUp 1,810% year over year and 57% quarter over quarter, in line with consensus expectations.
• Memory profitApproximately W92trExpected to be driven by strong pricing for commodity DRAM/NAND.
• Foundry/LSI lossesApproximately W2trThe report believes losses narrowed.
• Mobile and appliances profitApproximately -W1trThe two businesses combined may post a modest loss.
• Display business profitW700bnDriven by seasonal demand.
• Operating margin52%The overall margin remained strong even after including substantial employee bonus provisions; the memory margin exceeded 70%.
• Employee bonus provisionsApproximately 10% of operating profitReflecting the concentration of 1H26 provisions in 2Q26.
• Target priceW381,000Compared with the July 6 closing price of W318,000, implying approximately 20% upside.
• RatingOverweight; Top PickThe industry view is Attractive.

Impact & implications

The investment implication is that the in-line 2Q26 preliminary results are not the key issue. What truly matters is that Samsung is favorably positioned in the memory-cycle upturn. If subsequent earnings growth, capacity constraints, and upside to capital returns are further priced in by the market, the share price still has significant upside potential. The July 30 earnings call could provide a more optimistic outlook and serve as an important near-term catalyst.

Risks

• Advances in new technologies, particularly memory and foldable displays, could create upside risks.
• If AI and hyperscale data center growth drives a more durable memory upcycle, earnings and valuation could be revised higher further.
• Downside risks include product and memory-cycle volatility and competition from Apple and new Chinese smartphones.
• Earnings growth is concentrated in the semiconductor business; if memory prices or demand weaken, the company's overall earnings sensitivity could come under pressure.
• Morgan Stanley discloses investment banking and other service relationships with Samsung Electronics. Investors should therefore treat this research as only one factor in their investment decision.

What to watch

• Whether the July 30 10am KST earnings call delivers a more optimistic outlook.
• Whether DRAM ASP, commodity DRAM/NAND prices, and memory margins can remain strong.
• Whether AI and hyperscale data center demand extends the memory upcycle.
• The extent to which upcoming long-term agreements improve earnings stability and predictability.
• Whether there is further upside potential to capital returns.
• Progress in narrowing foundry/LSI losses and whether the mobile and appliances businesses can improve.