Samsung Electronics has signed a massive $16.5 billion contract to produce advanced artificial intelligence (AI) chips for Tesla. The agreement will run through 2033 and is a major step forward for Samsung’s chip manufacturing business, also known as its foundry division.
Chips Will Be Made in the U.S.
According to reports, the chips will be manufactured at Samsung’s new facility in Taylor, Texas. These chips are believed to be Tesla’s next-generation A16 processors, which are expected to power future versions of Tesla’s self-driving and AI systems.
Although Samsung confirmed the contract’s total value and timeline, it did not name Tesla as the customer. However, a source familiar with the matter confirmed Tesla is indeed the client. Elon Musk later confirmed the deal and said he would personally visit the plant to help improve production efficiency.
Big Boost for Samsung’s Struggling Foundry Division
This deal is a much-needed win for Samsung’s foundry business, which has been underperforming in recent years. The division has faced low chip orders and stiff competition from Taiwan’s TSMC (Taiwan Semiconductor Manufacturing Company), the current industry leader.
Samsung’s share of the global foundry market recently dropped from 8.1% to 7.7%, while TSMC holds a dominant 67.6% share. The Tesla deal is expected to not only fill Samsung’s underused production lines but also help attract more clients in the future.
Investors React Positively
Following the announcement, Samsung’s stock jumped by as much as 5%, hitting its highest level since September. Investors see the deal as a sign of confidence in Samsung’s upcoming 2-nanometer chip technology, which could compete more effectively with TSMC’s offerings.
Samsung-Tesla Deal Opens Big Growth Opportunity
CGS International’s Kyunga Lee believes Samsung’s $16.5 billion deal with Tesla could unlock major growth for the company. Tesla might choose Samsung as its sole memory chip supplier, which could bring in more business over their eight-year partnership. Currently, Samsung is providing next-gen AI6 chips to Tesla, but the deal could expand to include other chip types. Lee also mentioned that Samsung’s new U.S. chip plant could attract more orders from top tech companies once it starts production. Reflecting this positive outlook, CGS raised Samsung’s target stock price from KRW75,000 to KRW81,000 while keeping an “add” rating.
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