Samsung's Outperforming Earnings Trigger Slump as Kioxia Plunges Over 12%, AI Computing Power Concerns Batter Memory Chip Sector

TradingKey - During the Asian trading session on July 7, Japanese memory chip giant Kioxia Holdings plummeted by over 12% at one point, leading losses in the Japanese and South Korean semiconductor sectors. SoftBank Group once fell over 4%, while South Korean giants SK Hynix and Samsung Electronics both slumped about 10% at one point. As of press time, Kioxia was down 11.24% at 72,420 yen per share; dragged down by the collective weakness of chip stocks, the Nikkei 225 Index fell 1.75% to 68,576.85 points.

[Source: Futu]

The trigger for this round of sell-offs was a "better-than-expected" earnings report from rival Samsung Electronics.

On the same day, Samsung Electronics released its preliminary earnings guidance for the second quarter of 2026. It expects operating profit to reach a staggering 89.4 trillion won (approximately $58 billion), representing a massive year-on-year surge of 1,810.2%. This figure exceeds the company's combined profits over the past three years and far beats analysts' average estimate of 84.2 trillion won. However, this blowout earnings report was met with an intraday share price plunge of up to 9%. The paradox of better results leading to sharper declines reflects a classic "sell the news" logic. Analysts pointed out that the market had already fully priced in the earnings upside from rising memory chip prices, and some aggressive expectations even exceeded the actual figures, prompting a rush of profit-taking.

Samsung's plunge quickly spread across the regional supply chain. Kioxia became the hardest-hit area of this sell-off, which is closely linked to its substantial gains accumulated previously. Kioxia's stock price hit an all-time high of 112,700 yen on June 22, representing a spectacular rally since its listing. The massive accumulation of floating profits left the stock highly vulnerable when Samsung's "sell the news" signal rippled through the memory sector. However, Kioxia's fundamentals have not deteriorated, as NAND Flash contract prices continue to rise, with an expected increase of another 10% to 15% in the third quarter.

Kazuaki Shimada, chief strategist at Iwai Cosmo Securities, described the decline as a "healthy correction to a distorted market," with capital rotating out of high-valuation chip stocks into value stocks that have become cheap.

A deeper concern lies in the sustainability of investments in AI computing power. Previously, reports emerged that Meta was planning to sell excess AI computing power, which, coupled with OpenAI's optimization plans expected to significantly reduce inference costs, triggered caution in capital markets over the overheating of AI investments. The Bank for International Settlements (BIS) had also previously issued warnings on this. The market is beginning to question whether cloud service providers can sustain high capital expenditures amid an imbalance between AI computing power investments and revenue returns.

Despite the severe short-term volatility, some institutions remain bullish on the medium- to long-term outlook for memory chips. Some analysts believe that because building new capacity takes several years, and AI-related demand is growing faster than capacity expansion, the current price hike cycle may be more structural than traditional cycles. However, before Samsung officially releases its full financial report and subsequent guidance, it will take some time for market sentiment to recover.