One of Taiwan’s Biggest AI Winners Isn’t a Chip Maker

King Slide Works makes components like cabinet hinges and drawer slides. It also makes the rails used in AI server racks. That may sound mundane, but the rails support extremely heavy servers while keeping them cool. Any malfunction could cost millions.

King Slide’s business is booming as the world rushes to build data centers. The company has around 80% of the high-end server-rail market and enjoys fatter margins than customers like Nvidia.

When an AI server rack is worth millions of dollars, customers don’t care about the price of the rails it sits on, they care about the quality, Counterpoint Research associate director Brady Wang said.

The market seems to appreciate that. King Slide’s shares have surged nearly 280% so far this year, helping to make founder Lin Tsung-chi Taiwan’s richest person.

Forbes’ latest update estimates Lin’s fortune at about $20.2 billion, ahead of Foxconn Technology’s Terry Gou, whose company has also benefited massively from the AI build-out.

That’s not surprising when looking at King Slide’s financials.

Last quarter, the Kaohsiung-based company’s gross margin rose to 87%—up from about 50% a few years ago. That’s unusual even by AI-era standards, with analysts noting that a business built around physical hardware rarely achieves margins that high.

By comparison, Taiwan Semiconductor Manufacturing and Nvidia’s gross margins are at 68% and 75%, respectively. Chip designer Arm’s is around 97%, but that’s largely due to intellectual-property licensing.

Asked how simple pieces of metal can be so lucrative, King Slide executive vice president J.C. Wang said in a call with investors this month that two decades of engineering effort have given the company the technological edge to command higher margins.

Analysts see room for King Slide to capture a bigger share of AI infrastructure spending as cloud providers adopt custom chips, liquid cooling and denser hardware. The resulting redesign of servers, racks and related equipment is creating demand for specialized rail mechanisms that command higher average selling prices, they said.

In Houston, where King Slide operates a U.S. subsidiary, the company is expanding its manufacturing capacity to better serve North American AI infrastructure customers. But the company’s market-leading position won’t go unchallenged.

Daiwa Securities estimates that King Slide’s share of Nvidia-related rail-kit orders could fall to about 75% next year as the AI chip maker diversifies its sourcing.

Once new suppliers pass certification, hyperscalers could use that as leverage in price negotiations with King Slide, Counterpoint’s Wang said.

Still, King Slide gives traders exposure to companies that spent decades mastering highly specialized industrial technologies that are now essential for AI.

With its growth tied directly to AI infrastructure spending, “King Slide is the purest AI play in Taiwan,” J.C. Wang said.

Write to Yang Jie at jie.yang@wsj.com and Sherry Qin at sherry.qin@wsj.com