[Editorial] Funding alarm bells for AI firms and big tech; brace for a shock

Wariness about overheated investment in generative artificial intelligence (AI) infrastructure is growing in global financial markets. Analysts are increasingly warning that funding for the big tech firms and leading companies that have driven AI investment is flashing red. Warnings are emerging that South Korea’s economy, which has enjoyed a semiconductor boom fueled by growth in the AI industry, must also prepare for a possible AI bubble shock in the future.
Signs of a funding squeeze are emerging in the global AI industry. The Financial Times (FT) reported on the 30th of last month (local time) that Blackstone Inc., the world’s largest private equity firm, had told investors that Anthropic was likely to receive a credit rating in the “upper” speculative-grade range (BB) from major credit rating agencies after going public, rather than the investment-grade rating originally expected. The Wall Street Journal (WSJ) reported that OpenAI raised less than half the amount it had initially targeted in its pre-IPO fundraising.
Global big tech firms are in no different a position. Meta, which has made massive investments in AI to secure future growth drivers, could continue to post negative free cash flow through 2028 because of delays in monetizing its AI business, according to projections. Global credit rating agency Standard & Poor’s (S&P) recently maintained Meta’s credit rating at AA- but downgraded its outlook from “stable” to “negative.”
As of the third quarter, investment commitments by five big tech firms—Alphabet, Meta, Microsoft, Amazon and Oracle—totaled $3 trillion. Meanwhile, their free cash flow turned negative for the first time in 15 years. With their business models not yet sufficiently proven, they are pouring vast sums into data centers and AI chips, but monetization has been slow. Securities firms stress that AI demand has not waned, but it is clear that the funding burden on big tech is growing.
Signs of a funding squeeze among AI companies and global big tech firms should not be taken lightly. South Korea’s economy, which recorded a record current-account surplus in the second quarter on the back of a semiconductor boom, must also prepare for an AI bubble shock. The domestic semiconductor industry’s boom is closely tied to the expansion of global AI investment. If worsening financial conditions at big tech firms curtail investment in AI infrastructure, semiconductor demand and exports could also slow sharply. Given semiconductors’ large share of total exports, the shock to South Korea’s economy would be substantial.
Such a slowdown in exports could hurt corporate earnings, dampen investment and reduce tax revenues, as well as shock domestic asset markets. The government and businesses must therefore draw up thorough contingency plans to prepare for the risk of a peak-out shock.
Rather than sticking to an expansionary budget on the strength of robust semiconductor exports and a temporary rise in tax revenues, the government must safeguard fiscal soundness in preparation for falling exports and tax shortfalls caused by a slowdown in AI investment. It should continuously monitor the exposure of major semiconductor and IT companies and the financial sector, and diversify an export mix concentrated in a few products, such as semiconductors. Booms cannot last forever. Efforts to strengthen the industrial base must be accelerated now.