[Edaily Reporter SOYEON KIM ] “China’s Changxin Memory is catching up at an astonishing pace. Having rapidly dominated the general-purpose semiconductor market, it is now challenging the high-specification semiconductor and high-bandwidth memory (HBM) sectors as well. Therefore, we must devise extraordinary countermeasures to ensure that we do not cede leadership in the semiconductor industry to China, just as we have in other industries.”

Kim Kwang-seok, Director of the Economic Research Division at the Korea Institute for Economic and Industrial Research, stated at the “U.S.-Korea Relations at an Inflection Point: Key Issues and Challenges” roundtable held on the 13th at the Grand Hyatt in Yongsan-gu, Seoul, that “the pace of capital expenditures (CAPEX) for artificial intelligence (AI) data centers is bound to slow down following the U.S. midterm elections,” adding, “We must prepare for the possibility of a slowdown in U.S. investment and China’s fierce pursuit.” This roundtable was jointly hosted by the Sejong Institute, a state-funded research institute, and The Asia Group (TAG), a Washington, D.C.-based policy advisory firm, and organized by Edaily to explore U.S.-Korea relations following the U.S. midterm elections.

Director Kim noted that while the Korean semiconductor industry is currently experiencing an unprecedented “supercycle” driven by investment in AI infrastructure, he raised questions about the sustainability of this boom. In particular, he argued that the domestic semiconductor industry needs a response strategy, as the expansion of AI data center investments by U.S. Big Tech companies may be reaching its limits, and Chinese memory companies are closing the gap at an accelerating pace.

He likened the current semiconductor boom to a “reverse flow of money” phenomenon. He noted that even as the global economy enters a phase of low growth, explosive demand for AI infrastructure is creating an unexpected windfall for the Korean economy. He explained that implementing AI services requires not only AI models but also data centers and telecommunications and power infrastructure, and that this process is generating massive demand for semiconductors.

Director Kim said, “As the construction of AI data centers has surged, DRAM prices have tripled, and domestic semiconductor companies are also reaping massive profits,” adding, “However, questions are being raised as to whether this boom can continue in the future.”

He paid particular attention to the capital expenditure capacity of major U.S. Big Tech companies. Four companies—Amazon, Alphabet, Microsoft (MS), and Meta—have been leading the development of AI models and the provision of AI services while investing massive amounts of capital in data center construction. However, analysts note that as the scale of investment has recently expanded rapidly, it is becoming difficult for these companies to cover their capital expenditures solely with the cash they generate internally.

Director Kim noted, “Until now, AI companies have reinvested their earnings into capital expenditures, but this year, their free cash flow has sharply declined, and some companies have even seen their free cash flow turn negative.” He added, “While they may be able to continue investing through measures such as issuing corporate bonds, it will be difficult to maintain the same pace as before.” The outlook suggests that U.S. Big Tech companies will inevitably have to slow down their CAPEX investments.

He also pointed out that political and social pressures surrounding data centers have emerged as a new variable following the U.S. midterm elections. As data centers consume massive amounts of electricity, public opposition to rising electricity bills and the expansion of transmission grids is growing. In fact, the issues of data center electricity consumption and the burden of electricity bills emerged as major points of contention in this year’s U.S. midterm elections.

Director Kim stated, “While the U.S. maintains that it cannot fall behind China in the competition for AI supremacy, local residents are actually opposing the construction of data centers and power transmission facilities near their homes.” He added, “If discussions on increasing data centers’ share of electricity costs gain momentum following the midterm elections, investment in AI infrastructure will inevitably slow down.”

Analysts suggest that if this trend materializes, it could also impact the memory semiconductor market, which has experienced rapid growth driven by expanded investment in AI data centers. If the surge in demand that has driven DRAM prices higher begins to slow, it could become a wild card for the earnings of domestic semiconductor companies.

In particular, he cited the catch-up efforts of Chinese semiconductor companies as a major challenge facing the Korean industry. Director Kim emphasized that while SamsungElectronics and SK hynix are setting record-breaking earnings thanks to the semiconductor supercycle, their market share in the global market is actually shrinking. He expressed concern that China’s Changxin Memory (CXMT), having grown rapidly in the general-purpose DRAM market, is now expanding its business into high-value-added memory markets such as HBM. He explained that Chinese companies are repeating a strategy in the semiconductor industry where they first secure market share based on price competitiveness and then enhance their technological capabilities to enter the high-value-added product segment.

Director Kim emphasized, “While South Korean semiconductor companies are currently posting record-breaking operating profits and the boom may continue through next year, their market share in this expanding market is actually shrinking,” adding, “This is a challenge we must address.”

Director Kim predicted that CXMT’s share of the memory market would expand significantly from 2% in 2024 to 13% this year. He added, “Rather than resting on our laurels amid the current semiconductor boom, we must devise extraordinary countermeasures to strengthen our technological competitiveness and maintain market leadership in preparation for China’s pursuit.”