Naver 'AI Factory' Unveils Blueprint for 20% Margins... True Viability Test Begins Now

Naver has set a profit margin target of over 20% for its 'AI Factory' business. The AI Factory is a hyperscale computing center required to build its proprietary artificial intelligence (AI). During the second-quarter earnings conference call, the company stated that it could secure this level of profitability once operations are fully underway. The business is scheduled to begin with a capacity of 55MW (megawatts) in 2027, with long-term plans to expand capacity to the gigawatt (GW) level.

Following its partnership with Nvidia on AI Factory, Naver signed a strategic partnership with Brookfield to secure funding. On August 13, 2024, it also decided to invest in Pentallas, a U.S. startup developing offshore AI data centers. The company is proceeding with necessary steps, including selecting partners, securing investment costs, and establishing energy supply plans.

However, industry observers remain cautious, saying it is too early to determine the project's success. The key immediate challenge is whether customers will purchase GPUs and AI computing power over the long term. The AI Factory business entails significant costs, including depreciation for graphics processing units (GPUs) and electricity bills. Lee Jun-kyu, a researcher at Yuanta Securities Korea, stated, "While the narrative for the AI Factory business is sound, the business cycle is simply too long, and constructing a 200MW-scale data center is no easy feat." He added, "If a data center moves in, local opposition is often fierce. We need to examine whether resident consensus can be smoothly obtained after securing a site, and how transmission facilities, transformers, and energy sources will be secured."

Meanwhile, rather than jumping into the general-purpose AI development race which requires massive investment, Naver is focusing on its so-called 'Vertical AI' strategy, which specializes in high-performing agents for specific sectors such as shopping, booking, and search.