Domestic equipment investment is increasing, particularly in the semiconductor sector, driven by the expansion of artificial intelligence (AI) infrastructure investments by global tech giants. However, analysts warn that if global AI investments slow down, domestic exports and equipment investments could also decline.
According to the National Assembly Budget Office's 'NABO Economic Trends & Issues' report released on September 26, the combined capital investment of five major global hyperscalers—Amazon, Microsoft, Google, Meta, and Oracle—is projected to rise from $150 billion in 2023 to $735 billion this year, nearly a fivefold increase. Last year's capital investment was $395 billion.
The hyperscalers' data center investments are translating into domestic equipment investments through increased semiconductor demand. The report noted that domestic equipment investment grew by 4.4% year-on-year in the first quarter and by 6.3% in the second quarter, resulting in a 5.4% increase for the first half of the year. This growth is attributed to domestic semiconductor companies ramping up production capacity in response to the expanded AI investments.
A key concern is that the increase in investment is heavily concentrated in the semiconductor sector. According to analysis from the Bank for International Settlements (BIS), AI-related companies are expected to account for 26.1% of capital investment among listed companies in South Korea in 2024, surpassing the 23.3% share in the United States. The report highlighted that the high proportion of AI-related companies in South Korea's capital investment is due to the concentration of investments in two semiconductor firms.
If the semiconductor market slows down, both exports and equipment investments could be adversely affected. Semiconductor investments tend to fluctuate based on memory prices and inventory levels, meaning that as their share of total equipment investment increases, volatility may also rise.
The report indicated that no statements suggesting a reduction in investment were found in the earnings reports of the five hyperscalers. However, it noted that capital investments are growing faster than operating cash flows, raising the possibility that a slowdown in AI demand could delay the execution of investment plans.
Hwang So-jeong, an economic analyst at the National Assembly Budget Office, suggested, "It is necessary to ensure that semiconductor investment plans translate into actual execution by reviewing the supply of infrastructure such as power and water, as well as permitting processes."
She added, "We must maintain investment foundations in sectors other than semiconductors to mitigate the concentration of equipment investment and continuously monitor the investment plans and financial indicators of global tech giants."
According to the National Assembly Budget Office's 'NABO Economic Trends & Issues' report released on September 26, the combined capital investment of five major global hyperscalers—Amazon, Microsoft, Google, Meta, and Oracle—is projected to rise from $150 billion in 2023 to $735 billion this year, nearly a fivefold increase. Last year's capital investment was $395 billion.
The hyperscalers' data center investments are translating into domestic equipment investments through increased semiconductor demand. The report noted that domestic equipment investment grew by 4.4% year-on-year in the first quarter and by 6.3% in the second quarter, resulting in a 5.4% increase for the first half of the year. This growth is attributed to domestic semiconductor companies ramping up production capacity in response to the expanded AI investments.
A key concern is that the increase in investment is heavily concentrated in the semiconductor sector. According to analysis from the Bank for International Settlements (BIS), AI-related companies are expected to account for 26.1% of capital investment among listed companies in South Korea in 2024, surpassing the 23.3% share in the United States. The report highlighted that the high proportion of AI-related companies in South Korea's capital investment is due to the concentration of investments in two semiconductor firms.
If the semiconductor market slows down, both exports and equipment investments could be adversely affected. Semiconductor investments tend to fluctuate based on memory prices and inventory levels, meaning that as their share of total equipment investment increases, volatility may also rise.
The report indicated that no statements suggesting a reduction in investment were found in the earnings reports of the five hyperscalers. However, it noted that capital investments are growing faster than operating cash flows, raising the possibility that a slowdown in AI demand could delay the execution of investment plans.
Hwang So-jeong, an economic analyst at the National Assembly Budget Office, suggested, "It is necessary to ensure that semiconductor investment plans translate into actual execution by reviewing the supply of infrastructure such as power and water, as well as permitting processes."
She added, "We must maintain investment foundations in sectors other than semiconductors to mitigate the concentration of equipment investment and continuously monitor the investment plans and financial indicators of global tech giants."
* This article has been translated by AI.
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