Samsung has entered a multiyear agreement worth $16.5 billion to manufacture semiconductors for Tesla until 2033, as per a well-placed source. Initial reports of Samsung’s contract with a major global company were later revealed to involve Tesla.
This deal provides a substantial boost to Samsung’s foundry operations, which have been facing challenges like underutilized capacity and a drop in market share. After the announcement, Samsung’s share price rose by up to 3.5%, posting its biggest intraday increase in almost a month.
Neither Samsung nor Tesla has provided a public statement regarding the agreement. The partnership is expected to have long-term implications for the production capabilities of both companies.
We believe this long-term agreement provides a significant tailwind for the South Korean electronics giant, securing a major revenue stream for its underperforming foundry unit. This suggests a potential decline in the stock’s long-term implied volatility, making strategies like selling cash-secured puts attractive. Traders can capitalize on the newfound stability this deal provides for the next decade.
The company has been struggling to compete with the market leader, with recent data from TrendForce showing its global foundry market share at just 11.3% in the fourth quarter of 2023. This contract is a critical step in closing that gap and improving capacity utilization. We see this as a justification for considering bullish call options targeting medium-term price appreciation.
For the American automotive company, the deal significantly de-risks its supply chain for crucial self-driving and AI chips through 2033. This reduces a major long-term production bottleneck, which should be viewed positively by the market. This operational security makes its future growth plans more credible.
Historically, strategic manufacturing partnerships like the one between Apple and TSMC have created immense long-term value and stability. Such deals provide a powerful competitive moat by ensuring access to customized, cutting-edge production. We feel the market may currently be underestimating the strategic importance of this for the electric vehicle maker.
The broader semiconductor industry is also showing strong signs of recovery, with the Semiconductor Industry Association reporting that global sales increased 15.2% year-over-year in January 2024. This positive sector momentum supports our bullish view. Traders could also look at call options on semiconductor ETFs to gain broader exposure to this uptrend.
Given that both parties have refused to comment, some near-term uncertainty could keep options premiums inflated for a short period. This presents an opportunity to sell that volatility. We would look to implement strategies that profit from the stocks consolidating after this initial news-driven move.
