Semiconductors Are Not the Only Winners in the AI Era: Growth Pivot Is Shifting

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NH Investment & Securities: "Growth Spreading to Industries Leveraging Infrastructure"
South Korea's Exports Remain Robust... Investment and Government Spending Contributions Rising

Reuters Yonhap News

The flow of funds toward artificial intelligence (AI) is far from over. However, the destination of this capital is shifting. While the market's focus has so far been on AI infrastructure—such as semiconductors, data centers, and servers—analysts suggest that the next phase of growth is likely to shift toward industries that actually utilize this infrastructure.

On August 4, NH Investment & Securities economist Ahn Kitae analyzed in his report, "The Next Diffusion and Challenges of AI," that "once infrastructure for innovation is built, growth spreads to the industries that utilize it." According to Ahn, this follows a pattern similar to how the freight train industry expanded after railways were laid, or how e-commerce grew following the spread of the internet.

AI could follow a similar trajectory. Investments in semiconductors and data centers will likely come first, and then growth could spread to industries employing AI—such as software, pharmaceuticals and biotech, robotics, and automation infrastructure.

This does not mean the semiconductor cycle has ended. Even in the past, a slowdown in semiconductor sales growth did not immediately indicate the end of the cycle. During the 1980s and 1990s, there were periods of slower growth and even contraction, but the proliferation of PCs and the rise of the internet led to renewed growth.

However, semiconductors may find it increasingly difficult to be the sole beneficiary of AI. In the B2B sector, one party’s profit becomes another party’s cost. Prices for AI-related products have already risen to their highest levels since statistical tracking began. Although profitability for semiconductor companies may continue to grow, it will not be easy to further expand the extent to which these price increases are passed on to buyers.

South Korea’s export sector, driven primarily by semiconductors, is expected to remain resilient for the time being. This latest export boom is being fueled not only by higher unit prices but also by a rise in export volume. NH Investment & Securities projects that the year-over-year growth rate of Korean exports—including semiconductors—will remain in the double-digits even at year-end.

The next change to watch is a possible shift in the source of growth contributions. Economist Ahn believes that Korea’s economic engine may transition from exports to investment and government expenditure. The recent surge in semiconductor exports could, with a time lag, lead to increased corporate tax revenue—which would, in turn, expand the government’s capacity for fiscal expenditure. This could result in greater support for AI-adopting industries, such as data center construction, software, pharmaceuticals and biotech, and robotics.

The United States is in a more advantageous position when it comes to the expansion of industries adopting AI. This is because investments in AI infrastructure are underway even as the rate of AI adoption among businesses is quickly rising. The growing number of one-person businesses utilizing AI is part of this context. In the stage where hardware has been established and is followed by software and services, the U.S. advantage could increase even further.

Of course, there are also obstacles. Economist Ahn notes, "The issuance of corporate bonds by hyperscalers is increasing rapidly, and considering an average maturity of six years, these will come due around 2031–2032. The rise in bond issuance by both governments and corporations could constrain the decline in long-term interest rates. If high rates persist, this may place a burden on stock valuations and long-term expected returns."

This content was produced with the assistance of AI translation services.