In a bid to capitalize on the booming demand for artificial intelligence (AI) technologies, Samsung Electronics has announced plans to increase the supply of high-end chips. The world's largest memory chip maker expects the demand for AI to remain strong, which will help tighten the supply of certain high-end chips. This forecast has led to a 1.8% increase in Samsung's shares on Tuesday after reporting a substantial rise in first-quarter operating profit.

Despite a 0.8% decline in Samsung's shares this year, the company aims to catch up with its rival, SK Hynix, in the supply of top-end chips like high bandwidth memory (HBM) to AI leader Nvidia. Jaejune Kim, a Samsung vice president in charge of the memory division, stated in an earnings call that the company plans to increase the supply of HBM-related chips by more than three-fold compared to last year, starting in 2024.

Samsung has already begun mass production of its latest HBM chips, named 8-layer HBM3E, this month. These chips are designed for use in generative AI chipsets, and the company expects them to make up two-thirds of its HBM output by the end of this year. Additionally, Samsung plans to commence manufacturing the 12-layer version during the second quarter. According to Jeff Kim, head of research at KB Securities, the 8-layer HBM3E chips are likely to be supplied to Nvidia, whereas the 12-layer chips may go to both Nvidia and AMD.

To meet the rising demand for AI servers, Samsung will also step up the production of high-end solid-state drive (SSD) products. However, the company anticipates that the supply of high-end memory chips will tighten towards the end of the year due to HBM capacity constraints. SK Hynix echoed a similar sentiment last week.

In the first quarter, Samsung's revenue rose by 13%, reaching 71.9 trillion won ($52.14 billion), largely driven by a 96% increase in memory chip sales. The higher prices for memory chips, fueled by the AI boom, played a significant role in this growth. Operating profit for the same period surged to 6.6 trillion won, marking the company's highest since the third quarter of 2022. Furthermore, Samsung's chip division, which historically accounted for two-thirds of its operating profit, returned to profitability in the first quarter.

Not only is Samsung seeing success in the chip market, but its mobile devices business also reported an operating profit of 3.51 trillion won during the same quarter. The company shipped around 60 million smartphones, reclaiming its position as the world's top smartphone vendor from Apple, despite the latter experiencing a sales decline in China. The AI features of Samsung's flagship Galaxy S24 smartphones played a crucial role in maintaining their double-digit profitability. Around 50% of customers cited AI functions as the reason for purchasing the S24 phones, with 60% regularly utilizing these features.

As a result of increased memory chip prices, Samsung faced margin pressures with the launch of its Galaxy S24 smartphones. Nonetheless, the company remains optimistic about the future as AI-driven technologies continue to drive its sales and profitability.

Overall, Samsung's expansion of high-end chip supply reflects its determination to capitalize on the AI boom and meet the growing market demand for AI-related technologies.