Source: Zhitong Finance
Driven by the surge in electricity demand expected to be brought about by artificial intelligence and data centers in the US, the shares of South Korean electrical equipment manufacturers became one of the biggest winners in the country's stock market this year.
HD Hyundai Electric Co., which produces power transformers, switchgear, and generators, has risen nearly 160% since this year, becoming the best performing company among the components of the benchmark Korea KOSPI Index. Over the same period, the stock price of Hyosung Heavy Industries Corp. (Hyosung Heavy Industries Corp.) almost doubled, and LS Electric Co.'s stock price rose nearly 70%.
The rise in these stocks suggests that the industry will be a major beneficiary of surging demand for power for artificial intelligence applications, data centers, and other digital services. Demand for equipment in the US is expected to be particularly strong given the aging and inefficiency of the US grid.
Jae Lee, Chief Investment Officer of Timefolio Asset Management SG Pvt. in Singapore, said, “Power equipment in Asia is a huge subject due to artificial intelligence. There is a severe shortage of electricity, and America's electricity infrastructure is too old.”
Sales in this industry are also related to orders from Korean enterprise groups such as Samsung Electronics (SSNLF.US), Hyundai Motors, and LG New Energy to build new production facilities in the US.
Lee said that Korean manufacturers of transformers and other related equipment have grown from having almost no overseas business to now about 60% to 70% of their revenue coming from the US. He pointed out that their “substantial” increase in profit margins highlights this change.
“There is a huge demand to upgrade the US power infrastructure, and US customers are placing large orders with Korean power equipment companies,” Lee said.
American manufacturers such as$General Electric (GE.US)$und$ABB LTD (ABLZF.US)$It has always dominated its market, but booming demand for electricity has also led to a shortage of equipment in the country. DS Asset Management Co. fund manager Yoon Joonwon said that this has boosted prices and caused a backlog of orders, benefiting Korean producers.
“In the age of artificial intelligence, power shortages are seen as part of a structural supercycle,” Yoon said. “While these stocks seem a bit overheated in the short term, it is right to bet on these companies because they are still undervalued.”