[DigitalToday reporter Jin-ho Lee (이진호)] KT's early investment is in the spotlight as the valuation of AI startup Upstage jumps. With Upstage recently being valued at more than 1 trillion won, the company is expected to benefit both from business cooperation and from the rise in the value of its stake.

According to the industry on May 11, KT invested 10 billion won in Upstage in October 2023 to secure a 2.84 percent stake. At the time, Upstage was seen as a promising startup whose technology was recognised in South Korea’s generative AI field, but its profile was not particularly high outside the IT industry.

Upstage has gradually expanded its presence in the AI market with its in-house large language model (LLM) Solar and its document AI solutions. Last year, it joined a government-led "independent AI foundation model" project and advanced to the second round of evaluation. More recently, the Kookmin Growth Fund invested a total of 560 billion won in Upstage, including 100 billion won from an advanced strategic industries fund, 30 billion won from Korea Development Bank and 430 billion won from private investors, recognising its potential. The company also acquired AXZ, the operator of portal Daum, and grew into a leading AI company in the industry.

The investment industry values Upstage at about 1.6 trillion won. Applying that figure mechanically puts the value of KT’s stake at about 45 billion won. That is more than 4 times the 10 billion won it invested. KT has not said it plans to sell the stake, but if Upstage’s valuation rises further during a future initial public offering process, KT’s investment gains could also grow.

KT is also creating synergies with Upstage through technical cooperation. It has not simply invested in a promising AI startup, but is strengthening cooperation by joining overseas AI projects together.

A representative example is a Thai large language model buildout project. In April last year, KT pursued a project to build a Thai-language-based LLM with JTS, an IT company affiliated with Thailand’s Jasmine Group. It was the first case of a South Korean company exporting an LLM platform. Upstage jointly developed the LLM. For KT, it was meaningful in that it strengthened its AI business capabilities and secured overseas business experience through cooperation with Upstage.

The industry expects KT to enjoy spillover effects such as support for its share price if Upstage moves ahead in earnest with an IPO. There are signs it is being compared with SK Telecom’s investment in Anthropic. SKT has previously secured momentum for a share-price rise as the increase in the value of its stake in U.S. AI company Anthropic was highlighted. The interpretation is that KT can also show both its AI business capabilities and its investment judgment through its investment in Upstage.

Still, a variable is that Upstage has not yet entered a full-scale profit-making phase. As a generative AI company, it continues to face large costs for infrastructure, research and development and securing talent. Separate from revenue growth, whether profitability improves is an important criterion for future valuation assessments.

Even so, the market is placing weight on Upstage’s potential for continued growth. That is because it has already been recognised for its technology as it builds major references, including government projects such as the independent foundation model initiative, inflows of funding from the Kookmin Growth Fund and the acquisition of a major portal. In particular, there is a forecast that its valuation would jump to several trillion won if it is selected as a final elite team for the independent foundation model.

An industry official said, "Telecom companies’ investments in AI startups should look not only at simple equity gains but also at the potential for future business cooperation." The person added, "The KT-Upstage case seems meaningful in that investment performance and AI technology cooperation are moving in tandem."