[This Week's Stocks] Hot Selvas AI Surges Beyond Ecopro... ChatGPT Fever Heats Up

Stock Price Surges 320.39% This Year, Hitting Record Highs Daily
Growth Potential Highlighted by Expansion into Education and Telemedicine Services

Editor's NoteDear individual investors dreaming of successful investments. How well do you know the stocks you invest in with your own money? In the online environment flooded with unrefined information, Asia Economy aims to be your hands and feet, eyes and ears, delivering accurate information about companies. Each week, we focus on companies that rank high in stock search volumes on the financial information provider FnGuide, delivering everything from basic information to analyses of related companies such as partners, clients, and investors. We will explain companies' financial conditions, performance status, and future value in an easy-to-understand manner. We meet you every week under the name "This Week's Watchlist," highlighting stocks of interest. This week, we analyzed Selvas AI, a company attracting investors' attention as an AI chatbot (ChatGPT) related firm.

There is a stock that has recorded a higher rate of increase than the secondary battery stocks that have heated up the stock market this year. That is Selvas AI, related to ChatGPT. Selvas AI's stock price has surged 300% this year alone, rising more than fourfold in just two months. It has been hitting new all-time highs day after day, about 14 years after its listing. Selvas AI is also receiving intense investor interest, ranking first in search volume growth (as of the 20th) and third in stock searches on the financial information provider FnGuide.

South Korea's First AI Listed Company... The Only One to Develop Standardized Products

Selvas AI, established in 1999 and listed on the KOSDAQ market in 2009, is South Korea's first AI (Artificial Intelligence) specialized company. Based on deep learning technology, it has developed pattern recognition technologies such as voice intelligence, handwriting intelligence, and image intelligence. Leveraging this, it provides AI-related services with proprietary technologies like speech recognition and speech synthesis. Selvas AI currently holds the number one domestic market share in speech synthesis (B2B basis). Its speech recognition solution achieves an accuracy rate of 98%. As the only handwriting intelligence company in South Korea, it also possesses HCI (Human Computer Interaction) technology that facilitates easy interaction between computers and humans. HCI technology is one of the core technologies of artificial intelligence. Selvas AI boasts top-level domestic technology in speech recognition, speech synthesis, and natural language processing. Thanks to this technological prowess, it has secured major clients such as Samsung Electronics, LG Uplus, and Samsung Life Insurance.

Selvas AI's predecessor was Infraware, established in 1997. Current CEO Kwak Min-cheol is the founder of Infraware. Infraware was a software solution company that expanded its business into various fields such as printing solutions, mobile office, and cloud services. One of its subsidiaries was Diotek, a company specializing in handwriting recognition technology. In 2016, Diotek changed its name to Selvas AI and transformed into an AI specialized company.

The corporate governance structure also changed. Selvas AI became the parent company, with subsidiaries such as Selvas Healthcare. Through processes where affiliates changed their core businesses and the roles of affiliates and the parent company switched, Selvas AI took its current form. The current largest shareholder is CEO Kwak Min-cheol, who owns 2.66 million shares (about 14%).

Selvas AI's core business is in the field of speech recognition. Its flagship product is 'Selvy Note.' This service converts human speech into text through AI recognition, similar to Naver's 'Clova Note.'

What differentiates Selvas AI from other domestic AI-related companies is its success in developing standardized products. Most domestic ChatGPT-related companies possess the technology but have not reached the stage of developing standardized products, limiting them to system integration projects for public and financial institutions. Because of this, when securing projects, they must newly deploy development personnel according to customer requirements and recognize revenue and costs based on progress, making it structurally difficult to improve profit margins.

Selvas AI is different. It has succeeded in developing and standardizing AI products applying HCI technology, delivering completed products to various clients in public, medical, and healthcare sectors, and recognizing revenue through annual subscription fees per product sold without incurring additional sales expenses. Accordingly, Selvas AI's consolidated sales last year reached 50.3 billion KRW, a record high. Operating profit reached 5 billion KRW. Sales from speech recognition, including Selvy Note, grew 40% compared to 2021, and AI healthcare sales such as Selvy Checkup grew over 50%. Researcher Han Jae-yoon of KB Securities stated, "Due to the structural growth of the AI market, Selvas AI is expected to continuously benefit. While many domestic AI companies rely on service revenue, the fact that AI product sales exceed service sales numerically proves Selvas AI's competitiveness."

Growth through Portfolio Diversification ↑

Selvas AI has attracted attention in the stock market this year following the emergence of the conversational AI robot service 'ChatGPT.' From January 2 to March 20 this year, Selvas AI's stock price surged 320.39%, and its subsidiary Selvas Healthcare's stock price rose 304.31%. Selvas AI and Selvas Healthcare ranked 2nd and 4th, respectively, among the top gainers in the combined KOSPI and KOSDAQ markets this year. During this period, Selvas AI's stock price rose from 6,720 KRW to 28,250 KRW, and Selvas Healthcare's from 2,090 KRW to 8,450 KRW.

Selvas AI has recently expanded its business into education and non-face-to-face medical services, earning recognition for its growth potential. On February 23, the Ministry of Education officially announced plans to introduce AI digital textbooks in educational settings starting in 2025. The learning tools will transform with AI-equipped digital textbooks, accelerating growth in related education and AI industries.

In fact, Selvas AI is expected to be the biggest beneficiary of the Ministry of Education's announcement. Selvas AI operates the digital textbook viewer and platform project commissioned by the Ministry of Education and has been engaged in related projects for many years. Selvas AI's Edutech Lab was selected as a developer for the Ministry of Education's 'Intelligent Learning Service Platform' since 2019 and has led various technology developments. Currently, it has secured technology that can be linked by applying various AI technologies such as speech and handwriting recognition to the education field.

Selvas AI's speech recognition technology is also expected to shine in the government's push for non-face-to-face medical services. The Ministry of Health and Welfare announced plans to institutionalize non-face-to-face medical services. It is preparing amendments to the Medical Service Act to allow telephone consultations for follow-up patients and patients in medically underserved areas. Although there are issues such as conflicts with the medical community, the government is likely to amend the Medical Service Act related to non-face-to-face medical services, expecting positive effects such as improved medical accessibility and diversified treatment methods. When non-face-to-face medical services are implemented, AI technology integration is essential, and Selvas AI's speech recognition AI technology is expected to be adopted. Selvas AI's flagship product, equipped with functions to record conversations and ultimately generate reports, is expected to have high demand. Selvas AI, which owns a hospital-targeted product called 'Selvy MediVoice,' is likely to be spotlighted as a beneficiary stock of non-face-to-face medical services.

Additionally, Selvas AI is pursuing new growth engines by establishing a Metaverse Lab to enter the metaverse and non-fungible token (NFT) businesses. In December 2021, it signed a memorandum of understanding (MOU) with Wysiwyg Studios, an extended reality (XR) content producer, to build a metaverse platform. They are preparing technologies to synthesize and reproduce voices in various fields such as movies, dramas, games, and XR content. Researcher Kwak Ho-in of Samsung Securities said, "Selvas AI is expected to benefit from the government's recent public sector software ecosystem transformation policy because it has succeeded in productizing its solutions. Considering that productizing solutions takes about three years of time and cost, it can also enjoy a first-mover advantage."

Stock Price Overvaluation Controversy with PER Higher than Tesla

Although Selvas AI has top-level domestic technology and has succeeded in developing standardized products, there are clear limitations due to the nature of the industry. The AI market is still in its infancy, and the AI-related market is centered overseas, such as in the United States, rather than in South Korea. It is even difficult to find investment reports on AI-related companies at present.

Despite its high technological capability and product commercialization success, the stock price is considered excessively inflated, which is a risk factor. As of the 21st, Selvas AI's market capitalization is 703.4 billion KRW, ranking 80th in the KOSDAQ market by market cap. Selvas AI's price-to-earnings ratio (PER) is about 134.63 times, which is considered excessively overvalued compared to Tesla's PER of 30 to 40 times. It is also 9.38 times higher than the PER of companies in the same industry.

Another potential risk factor is that large corporations such as Naver, Kakao, and the three major telecom companies are rushing into the AI market. Currently, the companies considered most advanced in AI technology development in South Korea are Naver and Kakao. Naver launched a speech recognition service using deep learning in 2013. Kakao is also expanding its AI ecosystem through its AI research organization, 'Kakao Brain.' SK Telecom, LG Uplus, and KT are also pursuing IoT and AI speaker businesses, positioning AI as their next growth engine. KB Securities researcher Han Jae-yoon analyzed, "Interest in AI companies has surged with the emergence of ChatGPT, but ChatGPT's performance may fall short of market expectations. This could affect the investment sentiment toward domestic AI companies."