Key Takeaways
- LG Electronics is positioning itself in the AI semiconductor market, focusing on cooling technologies for data centers.
- The company faces challenges from trade tensions and competition, with a significant drop in operating profit reported.
- Long-term prospects look promising, with projections for the data center cooling market to reach $12 billion by 2030.
Strategic Focus on Cooling Technologies
LG Electronics is at a critical juncture, leveraging its strengths in cooling technologies to enter the rapidly expanding AI semiconductor market. The company aims to capitalize on the increasing demands of data centers due to AI growth, applying its expertise in hybrid bonding for high-bandwidth memory (HBM) chips and advanced liquid cooling solutions.
LG is developing hybrid bonders essential for stacking memory chips into HBM modules, with plans for mass production by 2028. This move could position LG as a key supplier for major semiconductor companies, including Samsung and SK Hynix. However, it faces stiff competition from established players such as Besi and Applied Materials.
On the cooling front, LG’s direct-to-chip liquid cooling systems, particularly the Coolant Distribution Unit (CDU), are designed to manage the high heat output of AI servers. Partnerships with companies like Nvidia and Microsoft are in the works, with a goal to triple cooling sales by 2025 and generate 1 trillion won ($750 million) in chiller-related revenue within two years. The newly formed Eco Solution (ES) Business Division aims to contribute 20% to LG’s revenue by 2030, with strategic acquisitions like Norway’s OSO enhancing its capabilities in energy-efficient systems.
Challenges in the Current Market
Despite these strategies, LG confronts significant challenges. U.S. tariffs on steel and aluminum derivatives have increased production costs, while rising LCD panel prices, due to supply chain issues, have negatively impacted operating margins—evidenced by a 47% year-over-year decline in Q2 2025 operating profit. Competing companies like Samsung and Nvidia also present formidable obstacles, with semiconductor dominance and ecosystems that LG must navigate.
Currently, LG’s operating margin has fallen to 2.8%, lagging behind Samsung’s 10.2%. Analysts believe it could slowly recover to 3-4% by 2026, dependent on the normalization of logistics costs and the success of recent acquisitions.
Market Outlook and Investment Considerations
LG’s strategy is centered on two main prospects: achieving dominance in B2B sectors, particularly HVAC and semiconductor equipment, and capitalizing on growth in AI infrastructure. The global cooling market for data centers is projected to reach $12 billion by 2030, driven by increased AI adoption. Early partnerships and investment in R&D position LG favorably to capture a significant market share.
However, short-term risks, including LCD price volatility and ongoing U.S.-China trade tensions, may hinder profitability. As for investors, LG’s current stock trades at a forward EV/EBITDA of 8.5x, suggesting potential long-term value despite short-term uncertainties. Investors are advised to consider holding or buying for the long term, given the company’s strategic pivot toward B2B and AI infrastructure, while being cautious of the inherent execution risks and thin margins.
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