SK Telecom has recently been added to Morningstar’s prestigious 5-Star list for American Depositary Receipts (ADRs). The U.S. investment research firm raised its fair value estimate for SK Telecom, citing the increased valuation of American artificial intelligence (AI) company Anthropic as a key factor.
Industry sources reported on Monday that SK Telecom was newly designated as a 5-Star stock in Morningstar’s 2 New 5-Star Stocks This Week announcement on August 3.
Morningstar’s stock rating system combines current stock price, analysts’ fair value estimates based on projected future cash flows, and the uncertainty of these estimates to indicate whether a stock is undervalued or overvalued. Stocks rated 4-5 stars are considered undervalued, 3 stars are at fair value, and 1-2 stars are deemed overvalued.
Morningstar has set the fair value of SK Telecom’s ADR at $44.70 per share.
In May, Morningstar significantly increased the fair value of SK Telecom’s ADR from 35 USD to 44.70 USD, a jump of about 28%. The report highlighted the surge in valuation of Anthropic, an AI company SK Telecom has invested in, as the primary driver for this upward revision.
At the time of evaluation, SK Telecom’s ADR was trading approximately 29% below Morningstar’s fair value estimate. Despite rating the valuation uncertainty as Medium, Morningstar concluded that the stock was undervalued compared to its own fair value estimate.
Over the past week, SK Telecom’s ADR has declined by 11.33%, and it has fallen 14.77% over the last three months. However, it has posted a robust 45.92% gain over the past year.
While Morningstar’s assessment is noteworthy, industry experts believe that SK Telecom’s ongoing AI initiatives will also play a crucial role in shaping its future corporate value.
SK Telecom has recently accelerated its AI business expansion, focusing on AI data centers (AIDC) and proprietary AI models alongside its core telecommunications operations.
Last month, the company established SK Hyper, a specialized firm for AIDC business development, with plans to invest up to 750 billion KRW (approximately 530 million USD) in stages by 2030. SK Hyper will oversee site and power acquisition, customer engagement, and business model development for the AI data centers.
SK Telecom aims to gradually bring online a 5-gigawatt (GW) AIDC starting in 2029, with plans to expand to a total capacity of 15 GW by 2035, subject to market demand.
During the second-quarter earnings call on August 5, the company reaffirmed its commitment to expanding the AIDC business.
SK Telecom’s Chief Financial Officer (CFO) Park Jong-seok emphasized that the top priority is to secure customers before building data centers, rather than constructing first and seeking demand later. He added that while the company will maintain strategic control over business initiatives, it aims to minimize direct investments in the expansion of gigawatt-scale operations.
Indeed, SK Telecom’s AIDC business revenue for the second quarter reached 136.2 billion KRW (approximately 96.2 million USD), marking a substantial 92.5% increase compared to the same period last year – the highest growth rate among all the company’s business sectors.
The company is also ramping up efforts to strengthen its competitive edge in AI model technology. Recently, it unveiled its proprietary AI foundation model, A.X K2, which boasts 688 billion parameters, a significant upgrade from the previous A.X K1 model with 519 billion parameters. The new model enhances performance in areas such as mathematical and scientific reasoning, Korean language proficiency, and long-text comprehension.
However, it’s important to distinguish this proprietary AI business from Morningstar’s 5-Star evaluation. The primary reason for Morningstar’s recent fair value increase is the rising investment value in Anthropic, while the AIDC and proprietary AI models are viewed as separate growth drivers that will impact SK Telecom’s long-term corporate value.