SKT Invested 280 Billion KRW in US AI Data Center Company, Stock Price Drops 30%

Largest Investment in AI Sector, Yet 2024 Fiscal Year Sales Fall 33%
Market Cap Drops 730 Billion KRW Since Investment
SKT: "A Partnership for Entry into the AI Market"

SK Telecom's shares in Penguin Solutions (formerly Smart Global Holdings), a U.S.-based 'AI data center integration solutions' company in which it invested $200 million (approximately 280 billion KRW) last year, continue to decline. SKT signed a convertible preferred stock investment agreement with the company in July last year, but the stock price has since dropped by more than 30%. The company's market capitalization, which represents its market value, has decreased by $500 million, or about 730 billion KRW, compared to that time. SKT is set to announce its Q4 earnings soon, and it appears inevitable that losses from equity investments will be reflected.

According to industry sources on the 17th, Penguin Solutions' stock price peaked at $29.35 on July 15 last year and has been on a downward trend since. As of January 14 this year, it fell to $19.58, a drop of about 33%. Compared to the conversion price of the preferred shares SKT purchased ($32.81), the value has declined by more than 40%. The market capitalization decreased from $1.55304 billion at the time of SKT's investment to $1.06 billion. This represents a loss in value of approximately 730 billion KRW.

Compared to the 32% sales growth in 2022, the recent underperformance relative to market expectations is cited as the cause of the stock price decline. The fiscal year 2024 sales, which ended in late August last year, were $1.17 billion, down 18.7% from the previous year ($1.44 billion). Additionally, according to quarterly earnings data released in October of the same year, the company's earnings per share (EPS) recorded $0.23, below the expected $0.27. EPS is calculated by dividing a company's net income by the number of outstanding shares and indicates how much profit is generated per share. Higher EPS generally increases the investment value of the stock.

An executive at Penguin Solutions selling shares also contributed to the stock price decline. On December 26 last year, Jack Pacheco, the company's Vice President and Chief Operating Officer (COO), sold 6,666 shares of the company at $20 per share, earning $133,320 (approximately 194 million KRW). This sale was conducted under the '10b5-1 plan,' which allows insiders to sell a predetermined number of shares at predetermined times to avoid insider trading allegations. U.S. companies use this rule to comply with securities laws and prevent insider trading accusations. However, when internal executives sell shares, the market may interpret this negatively, potentially leading to a stock price drop.

Headquartered in Silicon Valley, U.S., Penguin Solutions specializes in designing, building, and operating AI clusters composed of large-scale GPU servers as an 'AI data center integration solutions' company. It gained attention for building large-scale AI clusters for global companies such as Meta. In July last year, SKT decided to invest $200 million in convertible preferred shares in Penguin Solutions, marking its largest AI investment to date. In December of the same year, SKT completed the acquisition of a 10% stake in Penguin Solutions. Penguin Solutions plans to use the investment funds to expand its AI application service construction business. Additionally, Ha Min-yong, former CEO of SKT subsidiary Sapeon, joined Penguin Solutions' board of directors as a member.

The decline in Penguin Solutions' stock price is also expected to impact SKT's performance last year. SKT's consolidated net profit for Q3 reflected losses from equity investments, resulting in a 9.1% decrease year-over-year to 280.2 billion KRW. The upcoming Q4 earnings announcement next month is also expected to include issues related to the Penguin Solutions investment. An SKT representative stated, "The investment in Penguin Solutions is a strategic investment, not for short-term gains, and is part of a partnership to enter the AI data center market. Penguin is a leading global AI data center integration solutions company with expertise in building large-scale AI clusters, and we plan to continue our collaboration going forward."