Samsung Electronics' 2Q26 preliminary results met expectations, while core memory profitability was strong

Overview

This report is Morgan Stanley's view on Samsung Electronics' 2Q26 preliminary results. It states that quarter revenue and operating profit were broadly in line with market expectations, but after excluding bonus accrual factors, core earnings quality was strong, particularly as the memory segment was supported by rising DRAM/NAND prices, showing clear upward-cycle momentum.

Core views

The core thesis is that Samsung Electronics remains in a fast profit-recovery cycle, and the key investment debate is now on whether the memory cycle continues upward rather than on the historical results already disclosed for Q2. The report expects AI and hyperscale data center demand, capacity constraints, advantages in advanced DRAM and logic base die nodes, and the upcoming long-term contracts to improve earnings visibility and support 2H26 outperformance.

Analysis framework

The report combines earnings decomposition, cycle positioning, valuation modeling, and implied price comparison: it first dissects contributions from revenue, operating profit, and memory/foundry/mobile-electronics/display segments, then incorporates DRAM ASP assumptions, memory profit year-over-year growth, margins, and potential upside in capital return to assess valuation gap versus target price.

Methodology notes

• Valuation MethodResidual Income Valuation Model

  Residual income valuation

  The target price is derived from a residual income valuation model. Under the target, 2027e P/B is about 2 times, consistent with the memory-cycle high of roughly 2.0 times. The model assumes cost of equity of 11.5%, beta of 1.0, and perpetual growth of 3%.

• Research ModelMorgan Stanley ModelWare

  Morgan Stanley internal forecast framework

  Except where explicitly stated, the report's metrics are based on the Morgan Stanley ModelWare framework; some data uses a market-consensus estimate approach.

• Rating FrameworkOverweight / Equal-weight / Underweight

  Relative rating system

  Overweight means the stock is expected to deliver a total return over the next 12-18 months above the analyst team's sector coverage average on a risk-adjusted basis. The report maintains Overweight for Samsung Electronics.

Asset mapping & comparison

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

• Samsung Electronics (005930.KS)

  Core coverage name and Korean technology and semiconductor leader

  Strengths

  Upward memory cycle, strong DRAM/NAND pricing, memory margins above 70%, advanced DRAM and logic base die node competitiveness, and long-term contracts that help stabilize earnings expectations.

  Weaknesses

  Foundry/LSI remains in loss, mobile and consumer electronics combined into a small loss, and earnings growth is highly concentrated in semiconductors.

  Comparison

  Stock is up 165% year-to-date, significantly outperforming the KOSPI's 91% rise, but the report argues future earnings growth has not been fully reflected.

  Risks

  Product and memory-cycle volatility, competition from Apple and Chinese smartphone vendors, and high concentration of earnings in semiconductors.

• GRAIL INC (GRAL.US)

  A strategic partner company mentioned in disclosures, not the core investment target of this report

  Strengths

  A proposed cooperation with Samsung C&T and Samsung Electronics could bring Galleri multi-cancer early screening tests to key markets in Asia.

  Weaknesses

  Transaction still requires final agreements, customary closing conditions, and regulatory approvals.

  Comparison

  The relationship with Samsung Electronics is mainly from the proposed strategic cooperation and Morgan Stanley investment banking disclosures, not the report's valuation core.

  Risks

  Execution risk of cooperation, regulatory approval, and deal completion uncertainty.

Key data

• 2Q26 RevenueW171trUp 129% year-over-year, 28% quarter-over-quarter.
• 2Q26 Operating ProfitW89.4trUp 1,810% year-over-year and 57% quarter-over-quarter, in line with consensus.
• Memory Segment ProfitClose to W92trStrongly driven by commodity DRAM/NAND prices.
• Foundry/LSI LossAbout W2trThe report believes losses have narrowed.
• Mobile & Consumer ElectronicsCombined loss of about W1trThe report estimates this segment has a small net loss.
• Display Segment ProfitW700bnSupported by seasonal demand.
• Bonus AccrualAbout 10% of operating profitReflects 1H26 bonus accrual being largely recognized in 2Q26.
• 2Q26 Operating Margin52%Memory segment margin above 70%.
• 2026 Memory Profit GrowthMore than 1100% YoYThe report model expects memory profit to reach near W412tr.
• Stock PerformanceUp 165% year-to-dateKOSPI gained 91% in the same period.
• Target PriceW381,000Represents about 20% upside versus the W318,000 close.

Impact & implications

The report's equity implication is constructive: Q2 results themselves were in line with expectations, but strong core memory profits, high profitability, and earnings leverage under capacity constraints reinforce confidence in continuation of 2H26 performance momentum. If the market continues to raise earnings expectations and factor in potential upside in capital returns, Samsung Electronics may have additional outperformance.

Risks

• If the memory and product cycles are weaker than expected, upside revisions to earnings may be constrained.
• Competition from Apple and Chinese smartphone makers may affect mobile-related business performance.
• Earnings growth is highly concentrated in semiconductors, and if DRAM/NAND prices or demand weaken, valuation support may diminish.
• Foundry/LSI remains loss-making; if recovery is slower than expected, it could drag on consolidated profits.
• The report discloses that Morgan Stanley has investment banking, non-investment banking, and potential business relationships with Samsung Electronics, and investors should monitor conflict-of-interest disclosures.

What to watch

• The earnings conference call on July 30 at 10:00 KST, where management is expected to provide a more constructive outlook.
• 2Q26 DRAM ASP and subsequent price trajectory; the report uses a 56% 2Q26 DRAM ASP estimate.
• Whether AI and hyperscale data center demand can sustain the upward memory cycle.
• Progress on long-term contracts and their impact on improving earnings stability and predictability.
• Whether capital returns show upside and can continue to support outperformance.