Shipbuilding Industry Enters AI Data Center Market

Despite consistently good industry conditions since July, shipbuilding stocks have shown a decline. This decline is comparable to the adjustments seen in other leading sectors, suggesting that the industry is participating in the overall market correction.

Research fellow Uhm Kyung-ah pointed out the unique nature of shipbuilding stock prices, stating, "I've been saying for quite a while now that the stock prices are going in reverse."

Merchant ship orders, which were previously a major source of revenue for the shipbuilding industry, no longer act as a positive factor in the market. Research fellow Uhm Kyung-ah explained the current situation, saying, "It seems the market has reached a point where merchant ship orders don't even act as a positive catalyst anymore."

This suggests that the market is expecting new growth engines, and if new orders in emerging fields do not materialize, stock prices tend to fall.

Domestic shipbuilders are entering new markets by recently securing data center-related orders. Research fellow Uhm Kyung-ah stated, "In fact, among the items that domestic companies are ordering these days, there are cases where they are receiving orders for something related to data centers."

Such orders are primarily from private companies, making them highly likely to translate into actual profit generation.

An increasing number of data center construction projects in the United States are being delayed due to issues with connecting to the power grid. Research fellow Uhm Kyung-ah emphasized the severity of the power shortage, saying, "Even if it's not delayed, the problem is that electricity isn't connected, so it won't run unless power goes in, and it can't connect to the grid."

As a result, a trend of data centers needing to secure their own power is spreading, leading to a surge in demand for distributed power solutions.

Unlike past small-scale orders primarily from emerging economies, recent big tech companies are placing large-scale orders for power, creating a new market. Research fellow Uhm Kyung-ah explained, "But now, these big tech companies are buying 600MB, 700MB, or even 1 gigawatt at once, which is a much larger scale than previous spenders."

These big tech companies are purchasing power in hundreds of megawatts to gigawatts, a scale significantly different from the existing market.

The market for power generation engines supplying electricity to data centers boasts high profitability, with some European specialized engineering firms nearing 30% operating profit margins. Research fellow Uhm Kyung-ah noted, "Those companies have operating profit margins of 30%. So, looking at their delivery results, we can deduce that if we expand that business, it would be very profitable," suggesting new revenue potential for shipyards.

The surging demand for data centers is leading to a shortage of power generation engine supplies, which could present new opportunities for shipyards.

Accordingly, shipyards are expecting high profits from power generation engine orders, which is expected to contribute to the diversification of the shipbuilding industry's portfolio in the long term.

Land-based data center construction is facing difficulties due to opposition from residents and infrastructure shortages. Residents are protesting, concerned about deepening power shortages and rising electricity costs due to data centers, and issues such as water scarcity and noise from cooling are also being raised.

Research fellow Uhm Kyung-ah explained, "Data center developers were actively pursuing projects, but resident opposition has become more severe than before. So, as administrative progress on land is continuously delayed, a startup among American data center developers came up with this concept, suggesting that it might be better to solve this by making it float."

With political boycotts of projects and administrative delays also occurring, land-based data center construction is becoming increasingly difficult, which has prompted the emergence of the floating data center concept.

A projection has emerged that floating data centers (FDCs) can be implemented based on offshore plant technology. Research fellow Uhm Kyung-ah emphasized, "I don't think it's impossible to float data centers, either technologically or scientifically. We've already floated countless factories operating in the sea. In offshore plant technology, we can maintain position with dynamic positioning technology."

Offshore plant and position control technologies are already secured, and experience in operating floating oil refining and production plants can solve mechanical operation issues. Utilizing dynamic positioning technology allows for stable position holding even at sea.

The floating data center business is analyzed to offer higher profitability than traditional ship construction. Research fellow Uhm Kyung-ah stated, "If orders are received and the market becomes active, it's a more profitable business than building a single ship—meaning it has enough value to secure profitability."

This business can establish a stable, rental-based revenue structure targeting hyperscalers, and if a charter fee concept similar to ships is applied, high rental fees comparable to offshore plants can be secured.

Samsung Heavy Industries is collaborating with Musterian, a US company, to advance the 'Zeus' floating data center project. Research fellow Uhm Kyung-ah explained, "In fact, Samsung Heavy Industries is the client that brought the concept of this floating data center from Musterian in the US. [...] The target for operating this project is the first half of 2028."

The initial model will be developed to utilize land-based power.

Fuel cells developed for marine use are surprisingly compact and possess several technological strengths suitable for data center environments. Research fellow Uhm Kyung-ah explained, "These fuel cells are surprisingly very compact. [...] Because they are products created for cargo loading, one of the biggest virtues of everything that goes into a ship is to take up the smallest possible space while performing its function."

Thanks to miniaturized design for securing cargo space, efficient functionality is possible even in confined areas. Additionally, low noise and heat dissipation serve as important advantages for data center operations.

Such fuel cells have significant potential for expansion, not only for establishing emergency power grids but also as next-generation energy sources for power generation.

Samsung Heavy Industries is moving quickly as a first mover in the AI offshore data center strategy. Research fellow Uhm Kyung-ah emphasized Samsung Heavy Industries' proactive approach, stating, "Samsung Heavy Industries seems to be moving fast to become a first mover. In fact, Samsung Heavy Industries' name is explicitly mentioned on the US developer company's website."

Samsung Heavy Industries' partnership is specified on the US developer company's website, and Samsung Heavy Industries will serve as the construction contractor.

With the project's operation target set for the first half of 2028, Samsung Heavy Industries' position in the offshore data center market is expected to strengthen in the future.

On July 23, the Korea-US Shipbuilding Cooperation Center opened, establishing a focal point for shipbuilding cooperation between the two countries. Research fellow Uhm Kyung-ah highlighted the importance of establishing a legal basis, stating, "In shipbuilding, the Korea-US Shipbuilding Cooperation Center opened on July 23rd. So, a focal point has been established. I think it has taken a long time to establish the legal basis and frame for investment until now."

Concurrently, a special law for investment in the US was passed, but official new build plans remain undetermined.

The reason for the slow progress in shipbuilding cooperation with the United States is that national-level warship projects involve a very careful and long-term process. Research fellow Uhm Kyung-ah explained, "Government-led projects inevitably take a long time, especially building warships for another country, which is a first. Expecting this to proceed within one or two years would be too impatient."

Warship construction involves complex procedures such as design and bidding, and building warships for another country is even more so. Considering the case of Canada's CPSP project, which took two years after the RFI (Request for Information), expecting results within 1-2 years is an impatient judgment.

From a general cyclical perspective, shipbuilding stock prices are showing a somewhat stagnant trend. Research fellow Uhm Kyung-ah assessed, "Stock prices, from a general cyclical perspective, are not very refreshing. Some investors might think that while other sectors rallied strongly during their cycles, shipbuilding rested for quite a long time, and it has indeed been a very long rest."

Although there was much progress compared to last year, the lack of tangible results that investors could feel is cited as the reason. Shipbuilding stocks have entered a long period of rest since the first half of 2025.

One of the main reasons for the stagnation in shipbuilding stock prices is the perceived end of new capital inflow into the investment market. Research fellow Uhm Kyung-ah diagnosed the current situation, saying, "Fund managers are indeed saying that money inflow has definitely stopped. Yes, new capital inflow seems to have completely ended, but it's not leaving either. That's because I'm stuck, so I can't leave. So, are there any investors who would think of cutting losses on their current minus positions and buying shipbuilding stocks?"

It is analyzed that many investors are stuck with losses in existing leading stocks like semiconductors, making them unable to cut those losses and invest in shipbuilding stocks.

Geopolitical risks due to the Middle East war are causing a surge in sea freight rates, positively impacting the shipbuilding industry. Research fellow Uhm Kyung-ah explained, "Due to the war, especially the war in the Middle East, fuel prices are really skyrocketing right now. So, sea freight rates are at an all-time high these days. Freight rates for cargo types that don't pass through the Strait of Hormuz are also rising. As of yesterday, the BDI surpassed 3,400 for the first time in a while. Our iron ore and such barely go to the Middle East."

Soaring fuel costs are leading to strong performance in shipping stocks, and the overall shipping market is booming, with the BDI (Baltic Dry Index) surpassing 3,400. These high freight rates are expected to accelerate new build orders from shipping companies, positively affecting the shipbuilding industry.

The shipbuilding industry's third-quarter earnings may falter due to variables such as a weakening exchange rate and fewer working days. Research fellow Uhm Kyung-ah warned, "Recently, the exchange rate has sharply dropped, hasn't it? But we export everything in dollars. So, third-quarter earnings could definitely slow down. It's already the off-season, and as you know, recently it rained so much in Geoje, 900mm, that there might be some loss in working days at the shipyards. So, we need to prepare for a somewhat unexciting third-quarter earnings season in the short term."

Given that the shipbuilding industry exports in dollars, the recent sharp decline in the exchange rate could negatively impact earnings. Additionally, disruptions in working days due to heavy rainfall in the Geoje area are also expected to contribute to a short-term slowdown in performance.