Samsung Scores Deal to Make AI Chips for Tesla

Key Takeaways

This is a vote of confidence in Samsung's chip manufacturing when it' been losing market share. Peter, >> yeah, that's exactly right. Uh Samsung of course makes a whole bunch of things including smartphones. They've really made most of their profits though recently out of their semiconductor business. They're the leading maker of most memory chips out there. Um but they've been trying to build this foundry business so that they could compete with TSMC, compete for some of that high margin business from the likes of Nvidia and Apple. And now what they've got is really a marquee customer in Tesla where they can point to them and say, "Hey, Tesla is trusting us with the ability to make their high-end chips, these AI6 chips as as Ed was mentioning earlier, which is very important for their self-driving uh technology, which they hope to really bring on and force next year and the year after. So for Samsung, this is a big step forward. Uh it is a decent amount of money. Uh as we were talking about, it could increase their growth in the foundry business by about 10%. But probably more importantly than that is the strategic importance of being able to say they have this big marquee customer for the foundry business. >> Bloomberg broke the story that it was Tesla that was this at that time unnamed marquee customer. And it was interesting because Elon Musk actually gave us a lot of detail on social $16.5 billion over multiple years but Musk seems to be indicating it's bigger than that. And also Peter he talks about why it's important that it's in Texas. He seems to be suggesting that his proximity to the fab means that Tesla can be involved in the engineering and the ramp, but that he himself can wander the the lines himself, >> right? Yeah. How many businesses can Elon Musk get involved in? Now, apparently, he's going to do semiconductors, too. Yeah. It's quite interesting that he has said he he uh says that this deal allows him to be able to be personally involved, intimately involved, to be able to walk the lines and help with production. I don't know how much he knows exactly about semiconductor manufacturing, but you can imagine that having such an important customer there on premises is going to put some pressure on them to be able to build out quite quickly. Now, it's important to kind of step back here. Of course, the US has been trying to rebuild their semiconductor industry for a number of years. We saw the Biden administration come out with the chips act that offered $39 billion in incentives. Samsung is one of the big beneficiaries here. And one of the reasons that they're expanding their capacity in Texas is specifically so that they can supply US customers. They're going to skirt their way around the Trump tariffs uh if they're able to produce within the country and Elon Musk will be able to go there to Texas to be able to try out some of these things and then use them in the self-driving technology. So it is a step forward for that chips act and that effort to kind of rebuild the domestic industry. TSMC and Intel are both also beneficiaries of that effort. It is interesting though, isn't it, that it is overseas manufacturers building in the US that are able to make big tech win in terms of the chip supply chain. What surprised me was also how integral of course Samsung is once again to the Cosby. I think the Cosby, the South Korean index, is one of the best performers globally this year. SKH Highix has a lot to thank for it as well, though, >> right? Yes. SKH Highix has jumped out ahead in the the memory chips that are most used for AI, these HBM memory chips. They've actually gotten quite a bit of Sam ahead of Samsung on that front, which is a bit of a blow to Samsung, but Samsung is making some progress kind of climbing its way back trying to get um authorization to be able to sell those HBM chips to Nvidia, which is the most important partner at this point. But your broader uh point, yes, it's really TSMC has been leading the way in advanced chip manufacturing. It gets that high margin business from Nvidia and Apple right now and many other customers. There were many hopes within Washington that the next competitor in that foundry business would be Intel. They have not made that progress. We saw that last week in the earnings report and Lip Bhutan's questions about whether maybe he's going to pursue that foundry business. But we're seeing that Samsung is emerging as probably the the strongest alternative to TSMC. Everybody in the industry wants some uh competition in that market. They don't want to just have TSMC making the most advanced chips in the industry. They want to have some alternatives. Whether it's Samsung, whether it's Intel, whether it's somebody else,