The Unexpected Source of AI's Latest Mega-Investment
Editor's note: The largest U.S. companies are throwing money into AI. But they aren't the only ones driving AI spending... In today's Weekend Edition, we're taking a break from our usual fare to share an essay from the free Altimetry Daily Authority e-letter. In it, Joel Litman of our corporate affiliate Altimetry highlights a major AI-investment shift taking shape on the other side of the world...
For much of the AI boom, investors have tracked the same four technology giants...
Amazon (AMZN), Alphabet (GOOGL), Meta Platforms (META), and Microsoft (MSFT) are known as "hyperscalers."
They've poured buckets of cash into the sprawling data centers that run AI models. Their combined capital-spending plans for 2026 exceed $700 billion.
The hyperscalers created the first wave of AI infrastructure. Now, the companies supplying memory for that infrastructure are preparing a huge build-out, too.
And one country is at the center of it...
South Korea is harnessing its largest tech companies to invest at least 1,350 trillion won (equal to about $880 billion) to advance their AI strategies.
President Lee Jae Myung announced the coordinated effort in late June. He said that 800 trillion won is earmarked for semiconductor manufacturing. Another 550 trillion won will support AI data-center capacity.
In short, it's not just Silicon Valley that's plowing money into AI anymore. And investors need to prepare for a broader tech-infrastructure cycle.
The AI Players Fixing the Memory Shortage
Memory-chip makers are now joining the race...
Samsung Electronics (005930.KS) and SK Hynix (000660.KS) are the world's largest memory-chip manufacturers. Both are based in South Korea.
They plan to build two chipmaking plants apiece to support the country's goal of doubling its memory-production capacity within five years.
Each company will invest roughly 400 trillion won ($260 billion) into chipmaking.
Samsung is already spending at a dizzying pace... It has committed more than $70 billion this year alone to improve production capacity and invest in research and development.
All of this is a response to the massive memory-chip shortage the world faces today...
AI systems require advanced memory chips to quickly move data between processors. When companies deploy larger models and serve more users, they need more high-bandwidth memory.
Supply has struggled to keep pace with demand. JPMorgan Chase (JPM) estimates that the cost of some memory chips will soar by as much as 400% from 2024 through the end of this year. Device makers, including Apple (AAPL), have already raised prices due to the shortage.
Executives at SK Group, the parent company of SK Hynix, expect the shortage to last for several more years. That gives Samsung and SK Hynix a strong reason to expand their chip capacity before competitors can catch up.
It also explains why South Korea views the chip build-out as a top priority.
Memory chips are essential for both data centers and consumer devices. And South Korea already holds a commanding position in the market. Expanding capacity would strengthen the country's position in the global AI supply chain.
South Korea's AI Boom Will Boost Many Sectors
But more memory chips alone won't solve the bottleneck...
The 550 trillion won planned for beefing up data-center capacity shows just how deeply rooted AI has become in the global economy.
Companies like Naver (035420.KS) are building enough new data centers to consume 8.4 gigawatts of power by 2029. That's enough energy to keep 7 million homes running.
South Korea's government has pledged support for the electricity and water access needed to fuel the data-center expansion.
That means the potential beneficiaries include a lot more than just AI companies.
Semiconductor-equipment companies will supply the machinery used inside new factories. Data-center operators will manage the facilities. And utilities and engineering firms will deliver the power and cooling systems that data centers need to run 24/7.
Let's return to the present moment, though...
Samsung shares fell nearly 5% after South Korea's announcement, while SK Hynix dropped 2%.
Investors recognized that hundreds of billions of dollars in new capacity could eventually push supply ahead of demand.
Hyperscalers' massive capital-expenditure budgets were the first clear sign of a historic spending cycle...
South Korea's investment shows that the AI cycle has entered a new stage. Memory-chip producers are expanding their capacity to address the current bottleneck.
That's a bullish signal for the broader AI economy.
Expanding supply may eventually create pricing pressure for chipmakers. But it will also remove a hurdle that has limited data-center expansion.
The bottom line is, AI spending is gaining momentum beyond the hyperscalers.
As memory-chip capacity expands, it will give the rest of the tech supply chain room to grow... And investors will have an opportunity to profit from chipmakers.
Regards,
Joel Litman
Editor's note: The SpaceX IPO in June got a lot of attention. But everyone was too focused on the hype – rockets, Starlink, and the staggering $1.8 trillion valuation. Hardly anyone noticed what Elon Musk was positioning SpaceX to become in the future... or which stocks would benefit from it. Don't wait any longer – see Elon's hidden plan here.