South Korea’s $72B AI Bet: A Growth Grip or Gamble?

Source Credit : Portfolio Prints

Overview: A Bold Leap in the AI Race

In August 2025, South Korea’s newly inaugurated administration under President Lee Jae-Myung unveiled an extraordinary commitment: a ₩100 trillion (~US$71.6 billion) public–private AI and innovation fund aimed at revitalizing the country’s growth trajectory and asserting its place as a global AI powerhouse.

Alongside this mega-fund, the 2026 research budget is set to climb to ₩35.3 trillion (~US$25.2 billion), with a significant portion earmarked for AI advancement.

Moreover, this mega-fund is part of a broader strategic plan including 30 flagship initiatives in robotics, automotive, semiconductors, appliances, drones, and cultural exports like K-beauty and K-food

Will It Be Growth or Risk?

Growth Drivers

• Reviving Slower Growth: With GDP growth projections slashed from 1.8% to 0.9% for 2025, AI investment is a strategic tool to elevate potential growth from ~2% to ~3%.


• Private Sector Momentum: SK Group’s deal with Amazon Web Services—investing around ₩7 trillion (~US$5.1 billion) to build South Korea’s largest AI data center in Ulsan—marks a tangible vote of confidence.


• AI Talent & Leadership: Industry figures such as Upstage, whose "Solar Pro 2" LLM is now internationally benchmarked among frontier models, show promise beyond hardware dominance. The government is also developing incentives—including exemptions from military service and subsidized compensation—to retain AI talent.

Potential Risks

• Resource Allocation & Effectiveness: Injecting such massive capital raises questions: Will inefficiencies arise from bureaucratic red tape or misaligned incentives?


• Geopolitical Headwinds: South Korea’s push comes amid global shifts and U.S.–China tensions. Tech competition and export challenges may dampen returns.


• Execution Complexity: Delivering 30 initiatives across sectors—from robotics to cultural exports—requires sharp coordination and capability across government and business alike.

Striking a Balance

This bold move seeks to transform AI into a post-war style growth engine, mirroring South Korea’s earlier industrial revolution. By blending financial backing, open AI innovation, talent policy, and global partnerships (like AWS and SK), the government is aiming for synergy—but success hinges on disciplined execution.

Supporting Developments

• Policy & Planning Infrastructure:


• Bae Kyung-hoon has been appointed Minister of Science and ICT to steer the research and tech policy strategy


• Ha Jung-woo was named the first Senior Presidential Secretary for AI Future Planning, coordinating long-term AI policy initiatives.


• Strengthening AI Ecosystems: Earlier efforts under previous administrations had already set up institutional frameworks like the National AI Committee and the K-Humanoid Alliance—foreshadowing this expansion.


• Semiconductor Backbone: South Korea remains a dominant player in global memory semiconductors (over 60% of the DRAM and NAND markets) and continues to build chip clusters and infrastructure through policies such as the K-CHIPS Act.

Conclusion

South Korea’s ₩100 trillion AI investment marks one of the continent's most aggressive national strategies yet. If well-targeted, it could ignite new industries, cushion demographic woes, and propel innovation-led growth. However, ambiguous execution, global competition, and bureaucratic inertia pose serious threats.

The upcoming years—especially the rollout of the 30 innovation projects and Ulsan data center—will serve as litmus tests for whether this is truly a growth ‘grip’ or a speculative ‘gamble’.