Southeast Asia is gradually becoming a promising investment hot spot for leaders in the global artificial intelligence industry such as Nvidia and Microsoft, which are making financial injections in cloud services and data centers.
Currently, there is a so-called AI boom at the global level. The corresponding process began after OpenAI’s ChatGPT debuted in November 2022. This chatbot powered by artificial intelligence has demonstrated impressive abilities related to processing and analyzing large amounts of information and generating original content based on user prompts. The mentioned digital product has become an example of the effective practical application of machine intelligence and the significant results of the corresponding process. Moreover, artificial intelligence is gradually becoming a working tool in many industries. Also, some variants of the vision of the prospects for the development of machine intelligence provide that digital thinking systems in the course of technological evolution can transform into independent forms of consciousness that surpass the human mind in terms of cognitive abilities. Against this background, there is what can be described as a global interest in artificial intelligence. Among other things, the relevant interest has a kind of investment dimension.
Some companies have become beneficiaries of the artificial intelligence boom. In the relevant context, Nvidia’s rapid success in recent years is an illustrative example. In the summer of the current year, the market capitalization of this company, which develops graphics processing units for training and ensuring the subsequent operation of artificial intelligence systems, crossed, in a certain sense, the historical mark of $3 trillion. Nvidia has become one of the most valuable brands in the world.
At the same time, technology companies based in Southeast Asian countries, which are at an early stage of existence, cannot yet become beneficiaries of the boom in machine intelligence.
According to media reports, the world’s largest firms will invest up to $60 billion in the mentioned region over the next few years as the local young populations embrace video streaming, online shopping, and generative artificial intelligence. At the same time, startups based in Southeast Asia, for which AI is a kind of initial core, receive little funds. The corresponding state of affairs is because investors are very cautious about the prospects of interacting with early-stage companies, which potential is mostly something that has yet to be realized, rather than an existing result. This means that the Southeast Asian technology sector needs to demonstrate the possibility of producing innovative companies that develop high-quality products and can scale significantly.
Data from Preqin indicates that venture capital investments in early-stage firms based in Southeast Asia and specializing in artificial intelligence in the current year amounted to $1.7 billion out of about $20 billion for the Asia-Pacific region as a whole. Since the beginning of 2024, 122 AI financing deals have been concluded in Southeast Asia. This indicator is clearly not significant against the background of 1,845 deals in the Asia-Pacific region as a whole.
The mentioned data provokes inevitable doubts about the specified emerging region’s ability to build up its private sector and compete with the United States and China, the world leaders in the area of artificial intelligence.
The skepticism of venture capital investors regarding Southeast Asia’s efforts in the machine intelligence industry is a factor negatively impacting the growth potential of the entire technology sector in the region.
It is worth noting that investor interest in artificial intelligence and the use of large-scale AI capabilities is a global tendency. At the same time, in this case, the main financial injections are concentrated in China and the United States. It is worth noting that the US is the unequivocal world leader in terms of investments in the artificial intelligence industry. In this country, $68.5 billion in financial injections were made in the area of machine intelligence in the current year. At the same time, the Chinese artificial intelligence industry raised investments for $11 billion during the mentioned period. This is evidenced by the Preqin data.
Southeast Asia has a kind of favorable starting position. The region has a large population of 675 million people. There are also currently more than 2,000 startups operating in the artificial intelligence area in Southeast Asia. This indicator exceeds the number of startups of the corresponding profile in South Korea. Also, the mentioned figure is almost the same as in Germany and Japan. The relevant information was published by the tech advisory company Access Partnership.
Singapore, the largest business hub in the mentioned region, ranks third in the Global AI Index. In this case, the indicator that had an impact on the result was the number of scientists in the area of artificial intelligence per million people. But the broader region, including countries such as Indonesia, Malaysia, the Philippines, and Thailand, is culturally and economically diverse. This complicates efforts to rapidly scale products and services. Against the specified background, the issue of the ability of technology companies from Southeast Asia to compete profitably on the global stage is becoming increasingly relevant for investors.
Jussi Salovaara, managing partner and co-founder of Singapore-based early-stage VC Antler, stated that the linguistic, cultural, and infrastructural diversity of the mentioned region makes it harder to form large, unified datasets that artificial intelligence solutions traditionally rely on for scaling.
Investors in the area of machine intelligence are looking at the so-called foundation models, which underpin various services, engineering the software, necessary to train and refine them, and hardware enabling it all. The corresponding statement was made by Sang Han, a partner at East Ventures. It was also noted that all the mentioned is not happening at scale in Southeast Asia.
Currently, the entire venture capital industry of the mentioned region is facing such a problem as a dearth of exits. The corresponding state of affairs, which is already obviously unfavorable, is compounded by the weakness of the initial public offering (IPO) markets. In this case, there is an example of how it is difficult for the Silicon Valley model, fueled by private equity, to catch on in emerging markets.
The results of research from Google, Temasek Holdings Pte, and Bain & Co. indicate that the volume of private financing for companies in Southeast Asia is set to drop to a record low. During the coronavirus pandemic, the corresponding indicator was at its maximum level. Nowadays, investors are becoming more choosy. Also, in the relevant context, it is worth noting that capital is becoming more expensive.
An important circumstance is that the governments of Southeast Asian countries are not passively monitoring the situation related to the development of the artificial intelligence area in the region, taking measures to move forward in the appropriate direction. Virtually all these government have developed their own national machine intelligence frameworks. Moreover, Singapore provides financing to startups operating in the artificial intelligence area through its investment vehicles. Kelvin Lee, co-founder of the Alta investment platform, said that more needs to be done. Also in this context, it was noted that the governments of the Southeast Asian countries should cooperate to form a coordinated plan.
Kelvin Lee stated that the countries of the mentioned region are focused on completely different agendas. In this case, one of the common areas of effort is advancing high-tech sectors. At the same time, other countries are focused on improving basic infrastructure and living conditions. According to Kelvin Lee, the mentioned divergence makes it difficult to prioritize moonshot innovation on a regional scale.
At the same time, various difficulties and problems in no way negate the significant potential of Southeast Asia. The local artificial intelligence industry is not showing an intensive upward movement. However, at the same time, the digital economy of Southeast Asia is growing by double digits both in revenue and profit. This is evidenced by a study by Google, Temasek, and Bain.
In Southeast Asia, there is currently an increase in the number of the middle class with rising incomes. The base of mobile communication and Internet users is also expanding in this region. Moreover, many experts characterize Southeast Asia as a territory relatively shielded from the geopolitical risks associated with the current tensions between the United States and China.
Weisheng Neo, a partner at venture capital firm Qualgro, said that in the mentioned region, artificial intelligence opportunities may lie early in the value chain. It was also noted that the mentioned actions can help to build core assets that will lead to a competitive advantage. Some of the most successful AI startups in Southeast Asia have emerged this way. Singapore-based Patsnap Pte has invested in collecting, cleaning, and structuring data that has become the backbone of artificial intelligence models. Over the past 17 years, this company has built up large data sets spanning patent, chemical, drug, and food databases, used by customers like NASA, Tesla Inc., and Walt Disney Co. Currently, Patsnap Pte, backed by SoftBank Group Corp., uses the mentioned data to train its own specific-sector large language models and has added artificial intelligence tools like natural language processing.
Indonesia’s Alpha JWC, one of the leading venture capital firms in Southeast Asia, has teamed up with the Pijar Foundation to form a sandbox that will help bring together talent and startups active in the area of artificial intelligence with some of the country’s largest corporations.
Jeffrey Joe, a partner at Alpha JWC, stated that the mentioned interaction practice generates greater visibility on the different pain points large corporations face in integrating AI into their workloads, and the talent that’s available to solve these problems.
Efforts like the specified collaboration give startups based in Southeast Asia hope that there is still an opportunity to become a beneficiary of the artificial intelligence boom, or at least to move forward in the relevant industry. Jeffrey Joe stated that closer cooperation between all industry stakeholders is needed to realize such prospects. It was also noted that in this case, it is important for regulators, governments, buyers, suppliers, and consumers to come together.
The Southeast initially needs to successfully implement internal efforts to develop the domestic artificial intelligence area. If a strong AI industry is formed in the region, capable of elaborating high-quality and efficient products, the next phase of the evolution of the relevant functional space will be supported by external investments.
As we have reported earlier, China Seeks to Dominate in AI.
