Telecom Stocks Diverge... AI Data Center Investment Strategies Set Them Apart [Weekend Money]

SK Telecom faces cash-flow pressure from direct development
KT and LG Uplus also use "outsourced operations"
Share buybacks also affect stock prices

Telecom stocks, which have generally moved in the same direction, have diverged since early October. SK Telecom fell 9.7%, KT fell 2.9%, and LG Uplus rose 2.8%.

In a recently published report, Lee Dayeon, a researcher at Daol Investment & Securities, cited two reasons for the divergence. One is that concerns about future cash-flow burdens vary depending on how companies invest in AI data centers. The other is the supply-and-demand effect of share buybacks.

AI data centers are a new business for all three telecom companies, but investment methods mean different cash burdens

All three telecom companies are developing AI data centers as a new business. Data center capacity is measured by the amount of power available, in megawatts (MW). It is generally understood that building a 100 MW data center typically costs 1.5 trillion to 2 trillion won. As investment grows, companies may have less room to pay dividends, making it a concern for telecom stock investors who expect stable cash flows.

There are two main investment methods. One is for a company to own the land and buildings directly. The other is the DBO model, in which the company collects fees for handling only the design, construction, and operation, while a separate entity owns the building. The DBO model requires less direct investment from the company.

SK Telecom plans to develop 5 GW directly... greatest cash-flow concerns among the three

SK Telecom plans to begin building AI data centers with a capacity of 5 GW in 2029 and bring them online in stages starting in 2031. This is more than 35 times its current operating capacity of 140 MW. The company will invest 750 billion won in SK Hyper, a newly established subsidiary responsible for data center development, by 2030.

Development projects incur costs upfront during construction, while development profits and rental income begin only after completion. SK Telecom also established SK Horizon, a subsidiary dedicated to operations, by spinning off SK Broadband's data center and submarine cable businesses. The company plans to raise about 3 trillion won from external sources by selling a stake in SK Horizon and issuing new shares.

“Given the characteristics of its business model, SK Telecom is bound to face greater concerns than the other two companies about cash flow and rising investment costs,” Lee said. However, she explained, “The reason for separating the data center subsidiary's development and operations is also to maximize the efficiency of external financing.”

KT and LG Uplus are also using the DBO model... LG Uplus is also buying back shares

KT aims to secure more than 1 GW of capacity by 2031 through a combination of its own data centers and the DBO model. However, its stated investment plan for the next five years is 6 trillion won, less than the 15 trillion to 20 trillion won required to build the entire 1 GW directly. Lee said, “Most of the capacity is likely to come from DBO projects or leases rather than owned facilities.”

LG Uplus aims to reach a capacity of more than 600 MW by 2030. Its direct investment is centered on the Paju data center, for which about 2 trillion won in investment has been approved. LG CNS, another company within the group, is also in the data center business, sharing the investment burden across the group.

The companies also differ in whether they are buying back shares. A share buyback is when a company purchases its own shares, helping support its stock price. LG Uplus has been buying back shares worth 90 billion won since August 14. KT completed its buyback on September 9, while SK Telecom has not conducted one.

This content was produced with the assistance of AI translation services.