Samsung Electronics Co. shares rose 3.6% on Thursday following news of “meaningful” progress in supplying high-bandwidth AI memory chips to Nvidia Corp., a move that could help the tech giant compete more effectively against SK Hynix Inc. in the booming artificial intelligence market.

On an earnings call, Samsung’s executive vice president of the memory business, Jaejune Kim, confirmed that the South Korean company is in the advanced stages of qualifying its HBM3E memory chips with Nvidia, a key player in AI development. Samsung expects to begin selling the HBM3E chips by the fourth quarter, bolstering its high-margin offerings in an area that has largely been dominated by SK Hynix and Micron Technology Inc.

Samsung’s stock increase was countered by a 4.6% drop in SK Hynix’s shares, reflecting shifting market expectations. Samsung’s latest move may enable it to compete more directly for lucrative contracts in the AI-driven demand surge, which has fueled record profits for SK Hynix, including an unprecedented operating profit of 7.03 trillion won in the third quarter.

Despite the recent progress, Samsung’s semiconductor division, its largest profit driver, has faced ongoing challenges. The division reported an operating profit of 3.86 trillion won, falling short of analyst estimates and underscoring the competitive headwinds Samsung faces in the high-bandwidth memory (HBM) space and foundry services. Meanwhile, SK Hynix’s anticipated delivery of its advanced 12-layer HBM3E chips may maintain its competitive edge.

Samsung has responded by cutting production of legacy chips to focus on advanced memory products. The company expects to allocate significant capital expenditure—47.9 trillion won this year—towards high-end chip development. Mass production of its HBM4 chips is projected for the latter half of 2025.

Samsung’s broader operations, however, have helped offset its chip struggles. Net income hit 9.78 trillion won, surpassing the anticipated 9.14 trillion won, aided by successful launches in other segments such as smartphones, tablets, and wearables. Samsung’s mobile division reported growth despite high material costs, with positive projections for top-line smartphone sales in the current quarter.

Despite these gains, Samsung’s chip business has undergone restructuring to improve efficiency. The company recently began workforce reductions across Southeast Asia, Australia, and New Zealand, aiming to cut global headcount in response to a challenging operating environment.

Looking ahead, Samsung aims to revitalize its foundry services. Competition in the global foundry market, which Samsung projects will expand by double digits in 2024, has intensified as companies seek to secure capacity from Taiwan Semiconductor Manufacturing Co. (TSMC), a key supplier to Nvidia and Apple Inc. Samsung is targeting yield improvements on advanced production lines to remain competitive, despite planning reduced capital expenditure in this area.

Samsung is also repositioning its TV segment as an AI hub within the home, responding to intensifying competition in both TV and mid-range smartphone markets. The company remains optimistic about sequential growth in the smartphone market, even as it adjusts its approach to manage price pressures in mid-tier products.

With fresh gains in the AI chip market, Samsung hopes to recapture market share and increase profitability, although analysts like Greg Roh of Hyundai Motor Securities Co. suggest the company’s longer-term impact remains uncertain.