Samsung Just Out-Earned Apple and Nvidia, and the Stock Tanked 7%

Samsung Electronics just did something no company has done before. Its operating profit last quarter came in roughly 19 times what it was a year ago, revenue more than doubled to a record, and the bottom line landed above both NVIDIA (NASDAQ:NVDA | NVDA Price Prediction) and Apple (NASDAQ:AAPL). The stock, as CNBC’s Kristina Partsinevelos flagged Tuesday morning, fell 7%, briefly close to 10% intraday, and dragged the rest of the memory complex with it. If you were looking for the cleanest possible example of why great earnings can still torch a stock, this is the case study.

The Blowout That Wasn’t Enough

Start with scale. NVIDIA’s most recent quarter delivered $81.61 billion in revenue and $58.32 billion of net income, and Apple’s March quarter clocked $111.18 billion in revenue with $29.58 billion of net income. Samsung, on a consolidated basis, out-earned both on the profit line. That should be a victory lap. Instead Samsung shares are down because the stock is already up roughly 382% in a year, and at that kind of run rate the sell-side estimate stops being the number that matters.

The Whisper-Number Trap

Samsung beat the published Wall Street consensus by about 6%. Normally a 6% beat is a party. But when a name has tripled and change in twelve months, buy-side desks quietly mark their own internal targets well above the sell-side consensus. Those internal marks are the whisper numbers, and they are the numbers that actually get traded around. Miss the whisper, even while crushing the consensus, and the marginal buyer walks. Morgan Stanley’s shorthand for what’s happening was “memory exhaustion”, which is a polite way of saying every fast-money account that wanted to be long is already long.

You can see the same reflex in Micron Technology (NASDAQ:MU), which reported one of the more absurd quarters in semiconductor history two weeks ago. Revenue $41.46 billion, up 345.7% year over year, non-GAAP EPS of $25.11 versus a $20.28 estimate, gross margin expanding to 84.6%. Micron popped 11.7% in the first hour after the earnings report and has since bled over 20% in the past 5 days. Might be the same phenomenon.

The SK Hynix Cash Drain

There is also a very specific, very boring near-term reason Samsung is being sold. SK Hynix, Samsung’s memory rival, is listing a $28 billion ADR on the Nasdaq this Friday. When a giant new deal in the same subsector prices, portfolio managers who are already at their sector-weight limit have to raise cash somewhere. The easiest source of that cash is the most crowded, most appreciated position in the same bucket. Which right now is Samsung. Rotation in, rotation out, mechanical, and almost nothing to do with the actual fundamentals of either company.

Bubble Pop or Just Exhaustion

The tempting narrative is that this is the memory bubble popping. The pricing data does not agree. Counterpoint Research now sees DRAM prices climbing roughly 10% to 20% this quarter, above its earlier forecast. Micron’s guide for next quarter, $50 billion in revenue plus or minus $1 billion and non-GAAP EPS of $31, is not the guide of a company watching its end market collapse. NVIDIA’s $91 billion revenue guide and Jensen Huang’s line about “the largest infrastructure expansion in human history” are the demand pull on the other side of Samsung’s supply.

So what you have is a sentiment-and-flows selloff sitting on top of fundamentals that still look like a boom. Those two things can coexist for a while. They usually resolve when the whisper numbers reset lower, the SK Hynix deal clears, and the marginal buyer decides a memory stock at a reasonable multiple is once again interesting. Whether that takes days or quarters is the actual question worth arguing about. The 19-fold profit jump is not.

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