By Martin Baccardax

Samsung Electronics earnings and SK Hynix's planned U.S. listing this week will test the AI-fueled chip rally, offering investors an early read on demand for the memory chips powering artificial intelligence.

The tech-led rally has powered stocks for much of the year, and indeed carried markets on its back since the launch of OpenAI's ChatGPT in late 2022, as investors have bet that AI spending will continue to accelerate despite the sector's massive gains.

Samsung Electronics, the linchpin of the semiconductor trade that has powered a searing rally in Asian tech stocks, as well as South Korea's benchmark KOSPI index, will post preliminary second-quarter earnings late Monday, with a limited update that is likely to indicate a near 20-fold increase in profits tied to surging AI demand.

Its domestic rival, SK Hynix, will follow later in the week with a $28 billion listing of American depositary receipts on the Nasdaq Global Select Market as it seeks to fund the nearly insatiable appetite for its high-bandwidth memory chips, a key component of the global AI buildout.

TSMC, the world's biggest contract chipmaker, will post June revenue figures on Friday, with Wall Street looking for a first-half gain of around 36%.

Both Samsung and SK Hynix have overwhelmed the Asian tech trade this year, with Samsung rising more than 165% since the start of the year, and SK Hynix soaring a staggering 260% to top the $1 trillion mark in market value earlier this year. Their combined market value, in fact, is more than 16 times that of the third largest stock in the KOSPI index.

Analysts are looking for Samsung to post second quarter profits of 86 trillion Korean won, or roughly $56.4 billion, a near 83% increase from the same period last year and the third consecutive record tally for the world's biggest chipmaker.

Fuller second-quarter earnings details, including a breakdown of DRAM and NAND price increases, will follow later in the month.

Key to the group's outlook, and indeed the sustainability of a key component of the tech rally, will be the appetite of hyperscalers for memory chips, which currently comprise just over half of their capital spending forecasts, over the longer term.

The biggest U.S. hyperscalers, including Microsoft, Meta Platforms, Amazon and Google parent Alphabet, are expected to spend more than $725 billion on AI buildouts this year, more than double last year's total, with Goldman Sachs forecasting a 2030 total of more than $5 trillion.

Samsung and SK Hynix alone, in fact, plan to boost their own capital spending by as much as $2 trillion over the next 15 years in order to meet the anticipated demand surge. Around $880 billion of that will be directly invested in the building of chips and data centers.

"This is South Korea effectively declaring semiconductors, AI, and robotics as national survival infrastructure," said Luke Lango, technology strategist at InvestorPlace.

"The AI infrastructure supercycle isn't ending. It is being institutionalized by the governments of the world's most technologically advanced economies," he added. "That makes the demand curve longer, deeper, and more durable than any commercial capex model can capture."

U.S. investors will look for signals from both the SK Hynix listing, and the early Samsung earnings report, to gauge the expected level of both investors and industrial demand for what has become the hottest sector on Wall Street this year.

Micron Technology shares have powered a stunning 855% higher over the past 12 months, and now carry a market value of more than $1.1 trillion, while the PHLX Semiconductor index has gained more than 70% since the start of the year.

Intel, meanwhile, lost 75% from its peak in 2000 through September of last year. It's gained more than 600% since then, and topped its pre-Tech crash high in April.

But that trade is losing some steam.

The PHLX semis index is down 16% from its late-June peak, Micron is down 7% since posting outstanding earnings and a robust outlook on June 24, and Intel has lost nearly 15% over the past seven trading days.

Those declines, in fact, mirror the recent weakness in the KOSPI, which has fallen more than 11% over the past two weeks, with circuit breakers halting trades on both Samsung and SK Hynix on multiple occasions amid the broader tech pullback.

"How long will the good tidings last for the makers of memory chips?," asked Paul Meeks, managing director and head of technology research at Freedom Capital Markets. "Should we call the top with the announcement that SK Hynix and Samsung are investing to add capacity in South Korea, or will SK Hynix's ADR listing ring that bell?"

"I don't think so," he added. "Business is just too good for all."

It may need to be.

Write to Martin Baccardax at martin.baccardax@barrons.com

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