[This Week's Focus Stock] Samsung Electro-Mechanics Rides the AI Supercycle, Set to Rejoin the '1 Trillion Won Club' Next Year

AI Server Core Components MLCC and FC-BGA Drive Growth
Utilization Rate Soars to 99%, Ushering in a 'Year-Round Peak Season'
Stock Price Surges 137% in 8 Months, Yet Brokerages Say "More Upside Ahead"

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Samsung Electro-Mechanics, which had been hampered by sluggish demand for traditional IT products such as smartphones, is preparing for a resurgence by successfully transforming into a leading supplier of key components for artificial intelligence (AI). As global big tech companies ramp up investments in AI infrastructure, expectations are growing that Samsung Electro-Mechanics will fully benefit from a supercycle next year by dominating the supply of core components.

Securing Both Pillars of AI Server Core Components and Achieving a Turnaround

In recent years, Samsung Electro-Mechanics struggled with stagnant performance due to weak IT demand. Operating profit peaked at 1.4869 trillion won in 2021, then fell to 1.1828 trillion won in 2022, and dropped further to 660.5 billion won in 2023 and 735 billion won in 2024, falling below the 1 trillion won mark. Even in the fourth quarter of last year, operating profit was 115 billion won, falling short of the market consensus of 140.8 billion won.

However, the situation has dramatically reversed in just one year. According to Daishin Securities, Samsung Electro-Mechanics' operating profit for the fourth quarter of this year is expected to reach 232.1 billion won, a 102% increase year-on-year and above the consensus of 223 billion won. The company has consistently exceeded market expectations for operating profit every quarter this year, and its annual operating profit is projected to reach around 906 billion won, a 23% increase from the previous year, nearly returning to the 1 trillion won level.

The driving force behind Samsung Electro-Mechanics' rebound is undoubtedly its AI server components. The company holds an overwhelming advantage in two essential markets for the AI era: multilayer ceramic capacitors (MLCC) and flip-chip ball grid array (FC-BGA) semiconductor packaging substrates. MLCCs store electricity and supply it stably to active components such as semiconductors, while also blocking electromagnetic interference between components. With the expansion of AI server investments, demand for MLCCs has surged, pushing Samsung Electro-Mechanics' MLCC production line utilization rate to 99%. State-of-the-art AI servers require more than 10 times as many MLCCs as conventional servers.

For MLCCs, high reliability capable of withstanding small size, high capacity, high temperature, and high voltage is essential. Only Samsung Electro-Mechanics and Japan's Murata are able to stably supply such high-end products globally. Samsung Electro-Mechanics has secured a market share of around 40% in the AI server MLCC segment and is maximizing its benefits by leveraging this oligopolistic position. To meet growing demand, the company has decided to begin construction of its third plant in the Philippines in the first half of next year, with full-scale production expected to begin in the second half of 2027.

The company also stands out in FC-BGA technology, a key component connecting AI semiconductor chips and mainboards. Samsung Electro-Mechanics was the first in Korea to achieve mass production of server FC-BGA, and is evaluated as having a competitive edge in ultra-large (over 110mm) and ultra-high stack (over 26 layers) technologies, both essential for AI servers. The global supply chain for AI server substrates is limited, so the utilization rate, which stands at about 60% this year, is expected to rise to the 80% range next year and to the 90% range by 2027.

Seasonality Diminished... Annual Operating Profit Expected to Surpass 1 Trillion Won Next Year

The expansion of AI server and automotive component supply is also diluting Samsung Electro-Mechanics' chronic seasonality. Yang Seungsu, an analyst at Meritz Securities, noted, "Unlike a typical fourth quarter, there are no signs of year-end inventory adjustments this year, and high utilization centered on AI servers and automotive components is expected to continue." Lee Changmin, an analyst at KB Securities, also explained, "With the won-dollar exchange rate remaining high and the proportion of high-value-added components such as AI server and automotive parts increasing, chronic seasonality is being diluted."

Thanks to this structural shift toward high-value-added components, Samsung Electro-Mechanics is expected to post even stronger performance growth next year. Annual operating profit is projected to reach 1.14 trillion won, up 26.1% from the previous year, marking a new high since 2022 and returning to the '1 trillion won club.' Revenue is also expected to set consecutive records, reaching 11.26 trillion won this year and 12.3 trillion won next year.

Stock Price Soars, and Brokerages Continue to Raise Target Prices

Amid expectations of strong performance, Samsung Electro-Mechanics' stock price has continued its explosive upward trend throughout the year. The stock, which closed at 109,500 won on April 9, surpassed the 200,000 won mark in about six months. On December 15, it closed at 260,000 won, soaring 137% in just over eight months.

Nevertheless, most brokerages believe there is still room for further gains. KB Securities raised its target price for Samsung Electro-Mechanics by 17% to 350,000 won earlier this month, while Daishin Securities and IBK Investment & Securities raised their targets to 330,000 won, and Meritz Securities to 310,000 won.

Analyst Lee Changmin commented, "The MLCC and packaging substrate divisions are expected to benefit from the AI boom and experience a supercycle in 2026-2027," naming Samsung Electro-Mechanics as the top pick in the IT components sector. Analyst Yang Seungsu also predicted, "Next year, the company's positioning will rapidly shift from a focus on IT components to a core beneficiary of AI infrastructure, and a gradual re-rating phase will continue."