Doubts on AI investment to test Korean economy
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Korea has 3 to 4 years to prepare for post-memory boom economy
Growing concerns over the sustainability of the global artificial intelligence (AI) investment boom are translating into mounting financing pressures on major tech companies, raising fears that a slowdown in AI spending could deal an outsized blow to Korea's semiconductor-dependent economy.
Tech giants such as Google, Meta and Amazon are heavily relying on debt to finance their massive capital expenditures, as borrowing costs continue to rise. This also adds pressure to the fundraising plans of AI developers such as OpenAI and Anthropic.
This could eventually slow the pace of AI investment and weigh on memory chip prices, potentially sending shock waves through Korea's broader economy, which heavily relies on corporate tax revenue from Samsung Electronics and SK hynix.
Google's parent company Alphabet disclosed on Wednesday that its capital expenditures amounted to 121.4 percent of the cash generated from operating activities, meaning the company spent more on investments, mostly in AI infrastructure, than it generated from its operations.
Its free cash flow (FCF) remained negative for the second consecutive quarter, recording a deficit of $9.07 billion in the third quarter. Following the announcement, Alphabet shares plunged 13.9 percent over the following two trading sessions on Thursday and Friday.
Meta and Amazon face similar situations. Meta reported negative FCF of $2.1 billion in the third quarter, while Amazon recorded an FCF deficit of $42.4 billion over the past 12 months.
Both companies have increasingly relied on debt and equity financing to cover shortfalls from their AI infrastructure investments. Amazon issued $25 billion in corporate bonds in July, just four months after raising $37 billion. Meta also announced plans on Oct. 27 to raise up to $97.5 billion through equity offerings.
In July, Goldman Sachs projected that Big Tech companies would finance more than a third of their AI investments through debt in 2027. That prediction now appears to be materializing, as major technology companies increasingly turn to borrowing to sustain their AI infrastructure spending.
Samsung executives hold a seminar joined by OpenAI CEO Sam Altman at Samsung Human Resources Development Center in Yongin, Gyeonggi Province, Sunday. Courtesy of Samsung Electronics
These developments also suggest that investors are becoming increasingly concerned about the credit risks from AI investments.
According to CNBC, Meta's credit default swap spread, a derivative-based indicator that reflects investors' perceptions of a company's credit risk, was up 177 percent year to date as of Oct. 27, while Amazon's spread had risen 129 percent.
AI developers are also facing difficulties in securing funding. During his visit to Korea last weekend, OpenAI CEO Sam Altman met with top executives from Samsung Electronics and SK Group. While the meetings were publicly described as discussions about the future of AI, industry officials believe Altman also sought to discuss ways to stabilize memory chip supplies, share investment costs and strengthen capital ties.
When hyperscalers and AI developers face a slowdown in fundraising, concerns also grow that growth in orders for memory chips — a key driver of Korea's economy — could slow.
Samsung Electronics and SK hynix each reported record-breaking earnings last week, with both companies saying their high-bandwidth memory supplies are sold out through at least next year. Samsung expects demand to outpace supply through 2028, while SK hynix projects the imbalance will persist until 2030.
However, these forecasts are based on market expectations that hyperscalers will increase their investments by more than 60 percent year-on-year in 2027. If those investment plans are affected, the outlook for the broader memory chip market could also be shaken.
Another potential risk is that soaring memory chip prices are beginning to weigh on demand.
Market tracker Omdia said Monday that global smartphone shipments plunged 20 percent year-on-year in the third quarter of 2026, hitting their lowest third-quarter level since 2013, due to rising memory chip prices. Intel shares plunged 28.6 percent on Friday amid weakening PC demand. Although these developments have so far been concentrated in consumer devices, concerns are growing that servers and AI data centers could eventually face a similar squeeze.
“The problem is that Big Tech companies’ capital expenditures are growing faster than their operating cash flows, creating greater uncertainty over how they will finance them,” Kiwoom Securities analyst Han Ji-young said.
“As Intel's case has shown, concerns about weakening business-to-consumer demand due to rising memory chip prices have yet to be resolved, so investors are likely to remain cautious.”
Samsung Electronics and SK hynix chips are loaded onto a Korean Air cargo aircraft bound for Hong Kong at Incheon International Airport, July 30. Joint Press Corps
If the semiconductor industry falters, the broader Korean economy could also suffer. The Ministry of Trade, Industry and Resources announced Sunday that Korea's cumulative exports from January through October reached $930 billion, surpassing the $900 billion mark for the first time. If the trend continues, the country is expected to become the world's fourth economy to achieve $1 trillion in annual exports by the end of this year.
In particular, semiconductors accounted for 49 percent of total exports in October, effectively serving as the main driver of the export-dependent Korean economy.
The chip industry's strong performance has also translated into higher tax revenue and provided fiscal support for the government, with President Lee Jae Myung unveiling a record 821 trillion won budget proposal in his address to the National Assembly on Monday.
This also means that any shifts in global AI investment trends or chip prices could have an amplified impact on the broader Korean economy.
“The next three to four years, during which the semiconductor boom is expected to continue, will be a critical window for Korea to prepare for what comes afterward,” said Jang Sang-sik, head of trade trend analysis at the Korea International Trade Association.
“Memory chipmakers say they have sufficient orders and have signed long-term agreements, but that does not always shield them from price fluctuations, while signs of growing difficulties in financing AI investments are also emerging … Korea therefore needs to diversify its semiconductor industry beyond memory chips and expand exports in other industries, while continuing to strengthen semiconductors as a strategic asset.”