The global artificial intelligence (AI) boom is shaking up Korea's electrical and electronics sector. The market capitalization of parts maker Samsung Electro-Mechanics has surpassed that of LG Electronics, the world's No. 1 comprehensive home appliance company. While demand for consumer electronics such as smartphones and TVs is declining, demand for infrastructure-related products is rising on the back of the AI boom, sending the two companies' share prices in opposite directions and, ultimately, flipping their market caps.
Samsung Electro-Mechanics is a parts company whose main product is MLCC. MLCCs are supplied to corporations that make IT finished goods such as laptops and TVs, like LG Electronics. Until now, the conventional wisdom was that the shares of parts makers followed those of finished goods companies. Because consumption of finished goods has to increase for parts demand to grow, parts makers' share prices typically lagged those of finished goods companies.
But the AI boom has produced an upset in which parts maker Samsung Electro-Mechanics has overtaken LG Electronics in market cap. This trend is expected to continue. Securities firms are raising their target prices for Samsung Electro-Mechanics one after another, while target prices for LG Electronics keep falling.
Recently, the market capitalization of Samsung Electro-Mechanics surpassed that of LG Electronics for the first time. As Samsung Electro-Mechanics' share price climbed sharply, approaching the all-time high set in 2021, its market cap topped 13 trillion won. In contrast, LG Electronics' share price has struggled to recover, shrinking its market cap to around 12 trillion won.
Compared with the past five years, when LG Electronics' share price was strong, the contrast is even starker. As recently as 2021, LG Electronics' market cap was not even a meaningful comparison to Samsung Electro-Mechanics. At that time, LG Electronics' market cap reached 30 trillion won, while Samsung Electro-Mechanics' hovered around 10 trillion won, less than half of that.
But as AI has emerged as the "engine" of all technologies and services in the IT industry, the situation has changed. Samsung Electro-Mechanics, which had supplied parts to consumer electronics such as smartphones and laptops, has now secured global big tech companies leading the AI boom—Apple, Google, Amazon, and Meta—as customers. In particular, demand for MLCCs is expected to surge in the process of building AI infrastructure.
By contrast, LG Electronics is assessed as remaining a traditional home appliance company. Prolonged sluggish domestic demand has dampened consumer electronics spending, and as Chinese companies' offensives expand, LG Electronics has not broken free from the constraints of a manufacturer whose operating profit is determined by tariff and materials and supplies costs.
LG Electronics' share price hit its peak during the COVID-19 crisis, when the entire nation had to stay home to avoid the epidemic. At the time, consumption of furniture and home appliances surged, and when the company decided to exit its smartphone (MC) business, whose competitiveness had deteriorated, LG Electronics' share price topped 180,000 won. But it has been on a steady decline since and is now around 70,000 won.
The difference between parts maker Samsung Electro-Mechanics, which is leaping on the AI boom, and finished goods company LG Electronics is also evident in operating margins. Samsung Electro-Mechanics, as a parts maker, has an operating margin of 7% to 8%, while LG Electronics' operating margin is only 3% to 4%.
The gap in market caps, once reversed, appears likely to widen. Securities firms have recently been raising their target price for Samsung Electro-Mechanics in succession. They expect Samsung Electro-Mechanics' share price to rise to between 220,000 won and 240,000 won.
By contrast, expectations for LG Electronics are trending lower. Hana Securities, IBK Securities, and iM Securities recently lowered their target prices for LG Electronics.