While U.S. tech giants poured record sums into artificial intelligence infrastructure last year, South Korea’s Naver and Kakao pulled back on their investments, raising concerns that the country’s AI industry could fall further behind.
Naver and Kakao significantly reduced their investments in data centers—key infrastructure for artificial intelligence—throughout 2024, even as their cash reserves swelled to more than 10 trillion won combined.
In sharp contrast, Microsoft, Meta, Amazon and Google ramped up their AI infrastructure spending by 47% last year, collectively pouring $228.4 billion into the sector.
According to the Financial Supervisory Service on Apr. 16, Naver spent 580.3 billion won (about $407.4 million) and Kakao spent about $355.2 million on facility investments last year, for a combined total of approximately $762.6 million. Naver’s spending on data center infrastructure fell 16.17% from 2023, while Kakao’s dropped 29.95%.
That total amounted to just 0.3% of what the U.S. tech giants invested during the same period.
Citigroup estimated that around 80% of the American firms’ capital expenditures were focused on strengthening AI infrastructure, such as building new data centers and acquiring graphics processing units (GPUs).
These data centers, often dubbed the “brains” of AI, are critical to delivering high-performance computing services, and their scale directly impacts processing power.
“In late 2023, S. Korea’s homegrown AI models were nearly on par with those from global big tech, but the gap has widened since,” said one industry official.
“Even in Korean-language services, overseas models now tend to perform better.” The official added that some in the industry believe Naver and Kakao may have effectively given up trying to compete with global players using their own AI models.
Despite pulling back on spending, both companies saw a rise in cash holdings.
Naver’s cash and cash equivalents increased 17.42% year-on-year to about $2.94 billion. Kakao’s liquidity rose 14.03%, from $3.7 billion to roughly $4.31 billion. These figures are widely seen as key indicators of corporate investment capacity.
Still, the share of revenue devoted to infrastructure investment paints a clear picture of caution. Naver allocated 5.4% of its revenue to data center investments in 2024, while Kakao committed 6.4%. In contrast, the U.S. big four invested an average of 17.2% of their revenue into building AI infrastructure.
Naver and Kakao’s cautious stance also extended to research and development, where they continued to lag far behind U.S. tech firms in AI investment.
According to the Korea Institute of Finance, in the fourth quarter of 2024, Naver’s AI R&D spending equaled 7.2% of its revenue, and Kakao’s just 3.6%. Over the same period, Meta spent 77% of its revenue on AI, while Google invested 54.5%, Amazon 44.2% and Microsoft 44.1%.
Given these circumstances, experts say Naver and Kakao may have concluded that it is no longer realistic to compete against global players by developing proprietary AI models.
“Naver and Kakao may have reached a crossroads, unable to keep pace with the rapid advances of big tech’s AI,” said Kim Yong-hee, a professor of business at Sunmoon University.
“They likely realized that developing their own AI models would be difficult to sustain in Korea’s small market, making it hard to compete globally,” Kim added.
Yoon Hye-young, who leads AI policy initiatives at the Korea Association of Professional Information Engineers (KAPIE), pointed out that Korean firms lag far behind U.S. tech companies not just in capital, but in academic output as well, such as AI-related research publications.
“They probably viewed B2C AI services as a bottomless pit for investment,” Yoon said. “Going forward, Naver and Kakao’s AI models may find more use in public or financial sectors, where regulatory hurdles make it difficult for foreign firms to enter.”
Such caution from Naver and Kakao has raised alarms in the industry.
Concerns are mounting that the technology gap could widen even further if the two companies continue to scale back their AI spending—especially as the four U.S. tech giants are already gearing up for another wave of massive investments, with projected AI infrastructure spending this year expected to reach as much as $320 billion.
Against this backdrop, industry insiders warn that South Korea’s AI market could grow increasingly dependent on foreign firms.
“Google and Microsoft’s AI-powered search services are starting to erode the market share of local portals like Naver and Daum,” said one official. “And Meta’s AI-integrated messaging services are improving user convenience, posing a growing challenge to KakaoTalk’s dominance.”
Asked about its reduced infrastructure investments, a Naver spokesperson said the completion of its “Gak Sejong” data center and considerations such as server life cycles factored into the decision.
A Kakao spokesperson attributed the drop to a base effect, noting that the company had made significant investments in equipment and machinery for its own data center project through 2023.
