Samsung and SK Hynix have pledged $880 billion in chips and AI. It’s a South Korean survival story.

President Lee Jae Myung has summoned the leaders of the world’s two largest memory companies, calling them “national heroes” and describing the plan as a matter of “survival.” This is not usual in political rhetoric.

South Korea has presented its largest coordinated technological investment plan in history: At least 1.35 trillion won (about $880 billion) in semiconductors and AI data centers. Samsung and SK Group will build two chip factories each in the southwest of the country. And other companies, led by Naver, will build 8.4 gigawatts of data center capacity before 2029.

Why is it important. South Korea produces most of the RAM and HBM on the planet. SK Hynix is ​​the main supplier of HBM chips to NVIDIA, and Samsung is the second. With Google, Amazon, Meta and Microsoft announcing more than 700 billion in capex by 2026, the memory supply chain is the bottleneck that can stop all that expansion. Apple and Microsoft have already announced price increases for their devices due to the increase in the cost of these components.

In figures:

• 880 billion dollars in total investment, equivalent to about 5% of South Korea’s GDP in 2024.
• 4 new chip factories in the southwest of the country.
• 8.4 gigawatts of AI data center capacity by 2029.
• $295 billion: China’s five-year semiconductor investment plan, the benchmark South Korea has in mind.

Between the lines. The plan is industrial but also has a lot of politics:

• Lee’s approval rating has fallen to its lowest level since he took office a year ago, pressured by the economy, the weak won and housing.
• Locating the factories in the southwest (far from the Seoul metropolitan area, where all advanced production is concentrated) responds to an agenda of territorial redistribution that Lee has made an electoral banner.

Yes, but. The announcement did not sit well with the markets. Samsung fell about 5% on the day of the event and SK Hynix fell 1.7%. Investors have read it as a warning of possible oversupply if demand for AI chips slows before factories are operational.

Added to this are the known material challenges in this sector: building state-of-the-art factories requires quantities of water, electricity and talent that the government has promised to support… but without yet detailing how.

The context. This is not the first time that the Asian country has announced this type of commitment.

The difference now is the urgency: the boom of AI has accelerated deadlines and the competitive framework has changed. Japan subsidizes TSMC to build on its soil, China has been closing the gap for years with state financing and the United States has committed tens of billions through the CHIPS Act.

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Featured image | Daniel Bernard