Samsung SDS shares have fallen dramatically.
After reaching nearly KRW 380,000, the stock is now trading around KRW 190,000, losing more than half of its value. Over the past month alone, it has declined by more than 17%.
Just weeks ago, Samsung SDS was considered one of the key beneficiaries of South Korea's AI infrastructure boom. So what changed?
The answer lies in the widening gap between market expectations and actual business performance.
In this article, we'll examine why Samsung SDS fell so sharply, what the first-quarter earnings really tell us, and which indicators investors should monitor going forward.
What Does Samsung SDS Actually Do?
Samsung SDS is the IT services, cloud computing, and logistics (BPO) affiliate of Samsung Group.
For decades, the company has managed Samsung's enterprise IT systems, data operations, and digital infrastructure.
Recently, however, investors began viewing Samsung SDS differently.
Instead of seeing it as a traditional IT outsourcing company, the market started pricing it as Samsung Group's future AI infrastructure platform.
That optimism was fueled by three major developments:
- KKR agreed to invest KRW 1.2 trillion through a convertible bond while forming a long-term strategic partnership.
- Samsung SDS was selected as the preferred bidder for South Korea's National AI Computing Center project.
- The company announced plans to build a 60MW AI data center in Gumi.
These announcements arrived within a short period, pushing the stock to nearly KRW 380,000.
Why Did Samsung SDS Stock Collapse?
The turning point came when first-quarter earnings were released.
The market had already priced in years of future AI growth, but the financial statements reflected today's business reality.
Samsung SDS reported:
| Item | Q1 Results | YoY Change |
|---|---|---|
| Revenue | KRW 3.3529 trillion | -3.9% |
| Operating Profit | KRW 78.3 billion | -70.8% |
| Operating Margin | 2.3% | — |
| One-time Retirement Provision | KRW 112 billion | — |
| Adjusted Operating Margin | 5.7% | — |
Both revenue and operating profit came in well below market expectations.
The biggest reason was a one-time retirement benefit provision.
Following a South Korean Supreme Court ruling that incentive payments must be included in average wages, Samsung Group revised its retirement benefit calculations.
Samsung SDS therefore recognized approximately KRW 112 billion in additional retirement expenses during the first quarter.
However, even after excluding this one-time cost, operating margins were only 5.7%.
That level of profitability made the previous valuation difficult to justify.
In other words, investors were paying for the Samsung SDS of 2029–2031, while the income statement still reflected the company of 2026.
Management expects margins to recover beginning in the second quarter, targeting around 6% company-wide and nearly 12% within its IT Services division.
KKR's Investment Looks More Like a Strategic Alliance Than Financial Financing
KKR's investment attracted significant attention because of its unusual structure.
The convertible bond carries a conversion price of KRW 180,000, roughly 18% above the market price when issued.
That is highly unusual.
Most convertible bonds are issued at a discount.
In addition:
- Annual interest is only 2.5%
- There is no reset (refixing) clause
- Shares cannot be sold for six years
These terms suggest KKR is betting on Samsung SDS's long-term enterprise value rather than seeking short-term financial gains.
KKR is also expected to advise Samsung SDS on future mergers and acquisitions, capital allocation, and global expansion opportunities.
Considering Samsung Group's traditionally conservative ownership structure, bringing in an external strategic partner represents a notable shift.
Two AI Data Center Projects Investors Should Not Confuse
Samsung SDS is currently involved in two separate AI infrastructure projects.
The first is the National AI Computing Center in Haenam, scheduled for completion in 2028.
The second is the company's own AI data center in Gumi.
| Project | Location | Scale | Target Completion | Status |
|---|---|---|---|---|
| National AI Computing Center | Haenam | — | 2028 | Preferred bidder selected |
| AI Data Center | Gumi | 60MW (Phase 1) | March 2029 | Construction scheduled to begin in August |
Neither project is currently generating revenue.
Investors expecting immediate earnings contributions may need to be patient.
Why the KRW 19 Trillion Gumi Investment Matters
On July 3, the Korean government announced a major regional industrial development plan centered on Gumi.
Samsung Electronics and Samsung SDS together committed approximately KRW 19 trillion to the region.
The investment includes:
- Samsung Electronics' humanoid robot manufacturing facilities
- AI-driven smart factory upgrades
- Samsung SDS Phase 2 expansion of its AI data center
For Samsung SDS, this is much more than another data center project.
It positions the company as a core infrastructure provider supporting Samsung Electronics' future AI manufacturing ecosystem.
Samsung SDS Plans to Invest KRW 10 Trillion by 2031
The company has announced a long-term investment roadmap totaling KRW 10 trillion through 2031.
Funding will come from:
- KRW 1.2 trillion raised from KKR
- KRW 6.6 trillion in cash reserves
- Future free cash flow
Planned allocation includes:
- KRW 5 trillion for AI infrastructure
- KRW 1 trillion for AI services and digital platforms
- KRW 4 trillion for strategic acquisitions
According to iM Securities, expanding AI data center capacity beyond 200MW could become Samsung SDS's primary long-term growth engine.
The company has also set official targets of:
- 10% ROE by 2028
- 12% ROE by 2030
Economy Reader Investment Insight
Rather than focusing solely on short-term share price movements, investors should monitor three critical indicators.
First, whether operating margins recover beginning in the second quarter.
Management expects margins to return to around 6%.
Second, whether cloud computing and GPU-as-a-Service (GPUaaS) revenue continues growing.
Cloud revenue already increased 5.8% year over year during the first quarter despite weaker overall earnings.
Third, whether both the Gumi AI Data Center and the National AI Computing Center remain on schedule.
Successful execution of these projects will largely determine when AI investments begin translating into measurable financial performance.
If all three conditions are met, Samsung SDS could gradually evolve from a traditional IT services company into one of Samsung Group's key AI infrastructure providers.
If not, the stock may continue trading primarily on expectations rather than earnings.
Conclusion
Samsung SDS did not lose half its value because its business suddenly deteriorated.
Instead, investors realized that expectations had moved much faster than financial results.
Strong catalysts—including KKR's investment, AI infrastructure projects, and long-term expansion plans—drove the stock sharply higher.
But first-quarter earnings reminded the market that future growth still needs time to materialize.
The long-term investment thesis remains intact.
However, investors should pay closer attention to operating margins, cloud revenue growth, and project execution than to short-term market excitement.
Frequently Asked Questions
Is Samsung SDS undervalued today?
Some analysts believe the stock trades below its long-term fair value, but that assumption depends on successful execution of its AI infrastructure strategy through 2031. Near-term earnings recovery remains the key variable.
Are the National AI Computing Center and the Gumi AI Data Center the same project?
No. The National AI Computing Center is a government-led project in Haenam targeted for completion in 2028. The Gumi AI Data Center is Samsung SDS's own 60MW facility scheduled to begin operations in March 2029.
Was the weak first-quarter performance only a one-time issue?
Most of the decline resulted from a one-time retirement benefit provision. Nevertheless, adjusted operating margins remained relatively low at 5.7%, making second-quarter results especially important.
Why is KKR's investment considered unusual?
The convertible bond includes an above-market conversion price, a low interest rate, no refixing clause, and a six-year lock-up period. These terms indicate a long-term strategic partnership rather than a typical financial investment.
How significant is the KRW 19 trillion Gumi investment?
The KRW 19 trillion figure represents the combined investment plans of Samsung Electronics and Samsung SDS. For Samsung SDS, the project strengthens its role in cloud infrastructure and AI data centers that support Samsung Electronics' future manufacturing ecosystem.
Investment Disclaimer
This article is based on publicly available corporate disclosures and media reports. It is intended for informational purposes only and should not be considered investment advice or a recommendation to buy or sell any security. Investors should conduct their own research and make investment decisions based on their own judgment and risk tolerance.
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