In the summer of 2025, the global AI race has reached a fever pitch, and two Asian powerhouses—Taiwan and South Korea—are at its epicenter. Foreign capital has poured $25.7 billion into their tech sectors over the past three months, with Taiwan alone attracting $7.78 billion in July—the highest monthly inflow since the 2008 financial crisis. South Korea, too, has seen a surge, with $4.52 billion in July, its largest since early 2024. This deluge of investment reflects a world increasingly dependent on AI, but the question remains: Is this momentum sustainable?

The Drivers of Growth: Semiconductors, Strategic Alliances, and State Support

Taiwan’s dominance in semiconductor manufacturing has made it the linchpin of the AI supply chain. Companies like TSMC and UMC are producing the advanced chips that power AI models, while improved trade relations with the U.S. have further solidified investor confidence. South Korea, meanwhile, is leveraging its tech giants to build a robust AI infrastructure. Samsung’s $14.3 billion R&D center, focused on AI semiconductors and advanced packaging technologies like SAINT, and its $16.5 billion contract with Tesla to produce AI chips through 2033, underscore the country’s ambition. NAVER’s GAK Sejong data center, equipped with 3,056 NVIDIA H200 GPUs, is accelerating large language model training, positioning South Korea as a critical node in the AI ecosystem.

Government support has also been pivotal. South Korea’s $49 billion infrastructure funding initiative through 2027, coupled with tax incentives and R&D credits, is fueling growth. These policies, combined with the U.S.-ROK Economic Security Partnership, are expected to drive a 22% rise in AI-related sectors by 2025.

Risks on the Horizon: Geopolitics, Deglobalization, and Cyber Threats

Yet, the path forward is not without peril. The U.S.-China trade war looms large, with tensions over the South China Sea and technology transfers threatening to disrupt supply chains. A single escalation could halt the flow of materials critical to semiconductor production. Similarly, the Russia-Ukraine war has created a climate of economic uncertainty, dampening long-term investment in high-risk sectors like AI.

Deglobalization is another headwind. As nations prioritize domestic security, policies like the U.S. Inflation Reduction Act may divert capital from global markets. For Taiwan and South Korea, which rely heavily on international trade, this could limit access to foreign investment. Cybersecurity threats add another layer of risk. A breach at a key AI firm or infrastructure provider could erode investor confidence, triggering capital flight.

Climate change and de-dollarization also pose indirect challenges. Disruptions to global mineral supplies and currency volatility could complicate funding for R&D and production.

Expert Insights: Divergent Trajectories and Long-Term Outlook

Market analysts highlight structural differences between the two markets. Taiwan’s FTSE index, with a 75.5% tech weighting, has surged 40% over the past year, driven by semiconductor demand. South Korea’s FTSE index, at 49.2% tech weighting, has gained only 10%, partly due to weaker performance in non-tech sectors like industrials. While South Korea’s shareholder-friendly reforms and political stability are positives, its delayed entry into the HBM chip market—a key AI component—has left it playing catch-up.

Investment Advice: Balancing Opportunity and Caution

For investors, the AI-driven growth in these markets presents both opportunity and risk. Taiwan’s entrenched position in the semiconductor supply chain offers a compelling case for long-term investment, particularly in firms with strong U.S. partnerships. South Korea, while promising, requires a more nuanced approach. Investors should monitor the success of its $49 billion infrastructure plan and the resolution of tax policy uncertainties. Diversification across both markets, coupled with hedging against geopolitical risks, could mitigate exposure to volatility.

In the end, the sustainability of this AI boom will depend on innovation, policy agility, and the ability to navigate a fractured global landscape. For now, the momentum is undeniable—but the road ahead demands vigilance.