Samsung Electronics Q1 Earnings Shine: Storage Price Rises + HBM Volume Growth Drive Profit Upgrade

Overview

This J.P. Morgan earnings commentary reviews Samsung Electronics' financial performance for the first quarter of 2026 and significantly raises full-year and 2027 earnings forecasts. The key conclusion is that the traditional storage business far outperforms peers, with DRAM/NAND prices and profit margins rising strongly. The company has increased capital expenditure for fiscal year 2026 to support capacity expansion, while HBM is poised for substantial volume growth in the second quarter. Based on these improvements, J.P. Morgan raised its earnings per share (EPS) forecasts for fiscal years 2026-2027 by about 34% and maintained an Overweight rating on Samsung Electronics, with a target price of KRW 350,000.

Core views

In terms of performance, Samsung Electronics' total sales for Q1 2026 reached KRW 13.39 trillion, up 69.2% year-on-year and 42.7% quarter-on-quarter; operating profit was KRW 5.72 trillion, up 756.1% year-on-year and 185.1% quarter-on-quarter, significantly exceeding market expectations. Among them, the Semiconductor (DS) division generated an operating profit of KRW 5.37 trillion, with an operating profit margin of 65.7%, making it the primary source of profit. The DRAM business performed far better than peers. In Q1 2026, DRAM operating profit margin was 79% (compared to 55% in Q4 2025), with shipments up 3% quarter-on-quarter as guided, and ASP up 92% quarter-on-quarter (excluding HBM, up 105%). J.P. Morgan expects DRAM shipments to rise another 5% quarter-on-quarter in Q2 2026, with ASP increasing by another 44%, pushing operating profit margin further up to 84%. Meanwhile, the HBM business has entered a phase of rapid volume growth: Q1 2026 HBM bit volume was roughly flat month-on-month (+3%), accounting for 7% of total sales (vs. 12% in the previous quarter), but Q2 2026 HBM bit volume is forecast to grow over 35% month-on-month; the company has continuously raised its 2026 HBM sales growth target from double-digit annual growth to more than triple. The NAND business also performed strongly. In Q1 2026, NAND operating profit margin was 57% (vs. 24% in Q4 2025), with shipments up 9% quarter-on-quarter and ASP up 88% quarter-on-quarter; Q2 2026 NAND shipments are expected to rise 2% quarter-on-quarter, with ASP up 45%, and operating profit margin is expected to surpass 70%. DRAM/NAND inventory has fallen to extremely low levels, and NAND production line utilization rate (UTR) is at full capacity. To support capacity expansion, the company raised its capital expenditure for fiscal year 2026 to KRW 15 trillion, tripling year-on-year; gross memory spending for 2026-2027 is expected to grow by 49% and 31%, respectively. Non-storage businesses showed mixed performance. In Foundry, advanced processes gradually improved, while mature processes (CIS, PMIC, DDIC, etc.) are undergoing restructuring; LSI/Foundry reported an operating loss of approximately KRW 0.8 trillion in Q1 2026, and Q2 2026 sales are expected to grow quarter-on-quarter, with a slight improvement in profits. Display business had an operating profit margin of 6% in Q1 2026, dragged down by pricing pressure, but is expected to improve quarter-on-quarter. In the Device Experience (DX) division, MX (Mobile Experience) operating profit margin fell into the single digits, mainly due to cost pressures from rising component prices such as memory; Q1 2026 smartphone sales were around 60 million units, and the upward trend continued in Q2 2026, though the GS26 launch was delayed by about one month.

Analysis framework

J.P. Morgan takes 'rising storage cycle + AI HBM volume growth' as the main theme, combining volume-price decomposition with segment-by-segment profit-and-loss analysis. Specifically, by decomposing DRAM/NAND shipments (bit shipment) and average selling prices (ASP), it assesses the tightness of supply and demand and price elasticity; then, overlaying HBM’s sales share, bit growth rate, and product generation structure, it evaluates the contribution of high-end storage to profitability. On this basis, it aggregates departmental profit forecasts and cross-validates them against the company’s overall performance and capital expenditure plans. In terms of valuation, the report uses the P/B relative valuation method, based on a 2.2x FY26E-27E price-to-book ratio, and adds a 10% premium for peak-cycle levels, reflecting the expectation of a multi-year storage bull cycle and improving Foundry order conditions.

Methodology notes

• Valuation MethodPB valuation

  P/B (Price-to-Book Ratio) Valuation

  The report uses the P/B multiple to value semiconductor companies with strong cyclicality, avoiding PE distortion during sharp profit fluctuations; meanwhile, it anchors the valuation on historical peak-cycle P/B ratios and applies a premium based on the strength of this cycle, helping to gauge upside potential for stock prices.

• Industry/Industrial Analysis FrameworkVolume-price decomposition

  Storage Industry Volume-Price Decomposition

  Revenue for storage companies can be broken down into shipped bit volume × average selling price (ASP). By tracking DRAM/NAND volume and price trends separately, the report determines whether the supply-demand situation is 'price-driven' or 'volume-driven,' thereby forecasting changes in profit margins.

• Industry/Industrial Analysis FrameworkSupply-demand framework

  Storage Industry Supply-Demand Framework

  DRAM/NAND are typical cyclical products, where prices are determined by the supply-demand gap. The report emphasizes that current inventory has dropped to low levels and UTR is at full capacity, indicating tight supply—a core logic supporting sustained increases in ASP and profit margins.

• Cycle and Economic Sentiment FrameworkEconomic Sentiment Turning Point Analysis

  Storage Cycle Turning Point Identification

  By observing indicators such as operating profit margin, inventory days, and capacity utilization rate, the report identifies the stage of the storage cycle. The report believes that the current phase is a strong upward cycle, thus assigning a valuation premium above historical peaks.

Key data

• Total Q1 2026 SalesKRW 13.39 trillionUp 69.2% year-on-year, up 42.7% quarter-on-quarter
• Q1 2026 Operating ProfitKRW 5.72 trillionUp 756.1% year-on-year, up 185.1% quarter-on-quarter; market expectation was KRW 4.45 trillion
• Q1 2026 DS Division Operating Profit/Profit MarginKRW 5.37 trillion / 65.7%Compared to 37.2% in Q4 2025
• Q1 2026 DRAM OPM79%Compared to 55% in Q4 2025; ASP up 92% quarter-on-quarter
• Q2 2026E DRAM OPM84%ASP expected to rise 44% quarter-on-quarter
• HBM 2026 Sales Growth TargetMore than triple y-yPreviously targeted at double → 2.3 times → triple
• Q1 2026 NAND OPM57%Compared to 24% in Q4 2025; ASP up 88% quarter-on-quarter
• FY26-27E EPS Raise MagnitudeAbout 34%Reflects higher storage ASP and improved semiconductor profits
• 2026E Capital ExpenditureKRW 15 trillionTripled year-on-year
• FY26-2027E Gross Memory Spending Growth Rate+49% / +31%Infrastructure investment is the main driver of growth
• Target Price/Valuation BasisW350,000 / 2.2x FY26E-27E P/B10% premium over historical peak FTM P/B

Impact & implications

The report concludes that Samsung Electronics’ traditional storage business has exceeded market expectations in terms of price elasticity and profit expansion during this cycle, and coupled with the rapid volume growth of the HBM business driven by AI server demand, will continue to drive the company’s earnings upgrade for 2026-2027. The company is simultaneously increasing capital expenditure, signaling management’s optimistic outlook on future demand. In terms of valuation, J.P. Morgan believes that the valuation gap between Samsung and peers such as SK Hynix and Micron is likely to narrow, and the P/B premium over historical peaks is justified, primarily based on the expectation of significant ROE improvement. However, the DX/mobile business profit margin, hampered by rising component costs, could become a short-term drag on overall profitability.

Risks

• Extended downward cycle in storage prices
• Lower-than-expected HBM demand from ASIC customers (FY25-26E)
• Future delays in HBM product certification
• Slower-than-expected growth in mobile devices

What to watch

• HBM bit volume growth and backend capacity ramp-up progress
• Continued momentum in DRAM/NAND ASP and inventory level changes
• Execution of fiscal year 2026 capital expenditure and end-of-year pull-in of WFE (wafer equipment)
• Progress in Foundry mature process restructuring and introduction of advanced process customers
• Recovery pace of MX/smartphone profit margins amid rising component costs