Cooling system makers thrive in AI boom

LG Electronics home electrification solutions are displayed during this year's AHR Expo 2024 in Chicago, Jan. 22. Courtesy of LG Electronics

Cooling system makers are experiencing a significant surge in demand for their products, attributed to the booming utilization of artificial intelligence (AI) across various industries, particularly in data centers, according to data and industry officials, Wednesday.

LG Electronics and Samsung Electronics are regarded as the most influential players in the industry, having secured the most advanced technologies for producing cooling products optimized specifically for data centers.

The popularity of generative AI here and abroad is boosting their presence in the market, according to data from Shinyoung Securities. Its research center expected the cooling system market for data centers will be worth $30.3 billion (41 trillion won) by 2030. The figure reached $14.9 billion in 2023.

Last year, LG Electronics generated almost a quarter of its sales from heating, ventilation and air conditioning (HVAC) businesses.

Unlike the consumer electronics sector, the data center cooling systems industry experiences less competition, offering an opportunity for companies to solidify their position further, particularly in line with the gradual expansion of the AI industry both domestically and internationally.

The cooling systems of both firms showcase top-level technological prowess within the industry and are extensively adopted by major clients across various sectors, including telecommunications, banking and government institutions.

Samsung Electronics is also intensifying its focus on the industry. The company recently announced its intention to establish a joint venture with Lennox, a U.S.-based HVAC firm, aiming to bolster its presence in the lucrative cooling system market in North America.

Industry officials anticipate that the firm will further solidify its position in the market, driven by robust demand for AI data centers and its unmatched technological excellence.

“A hybrid cooling system – enabled by a combination of diverse existing cooling technologies – will become mainstream for the AI data center cooling system market in the future,” KB Securities analyst Kim Dong-won said. “LG Electronics already obtains a number of total cooling solutions, so the company will be the key beneficiary of the booming AI industry.”

Shares of LG Electronics surged by 13.59 percent on Tuesday from a day earlier. This was the steepest rise since January 2021. Foreign and institutional investors engaged in a mass buying spree of the shares on reports that the company clinched a mega-sized contract to supply its cooling systems to large data centers in the United States.

Industry watchers also said both electronics companies will be able to continue their winning streaks in the market for HVAC.

“They are renowned for developing inverters and compressors — key components for the cooling system — and maintain their robust brand identity in the industry, so the proportion of sales from the business will rise further down the road,” an official at an electronics company said.