Songyun Park | 27.09.2026
Chips, Booms and Risk: What AI Teaches Us About a Country's Economy
All AI chatbots, image generators, and search tools rely on powerful computer chips. These chips are now among the world’s most valuable products, and the countries that produce them can benefit greatly. South Korea, a leading maker of memory chips, shows both the chances and risks of this boom. Its experience is a useful example of how trade, investment, and financial markets are linked.
The AI chip boom: supply and demand at work
The main reason for the boom is strong demand. The five largest tech companies are spending more than $700 billion on AI infrastructure this year. According to Goldman Sachs, global AI spending could reach $765 billion in 2026 and rise to $1.6 trillion a year by 2031.
At the same time, supply is limited. Advanced chips are difficult and costly to produce, and one Nvidia H100 chip costs around $40,000. Memory is a key bottleneck because each new chip generation needs more of it. For example, the H100 has 80GB of memory, while the newer B200 has 192GB. When demand is high and supply is tight, prices and profits go up. This basic economic principle explains the entire boom.
Where South Korea fits: comparative advantage
The theory of comparative advantage means countries succeed when they focus on what they make best and trade for other goods. South Korea is a good example of this. The AI chip supply chain entails several countries: Nvidia designs many leading chips, TSMC in Taiwan manufactures them, and Korean companies like Samsung and SK Hynix produce the memory. South Korea is a top player in the AI chip boom because of its strength in memory production.
Chips are high-tech manufactured goods, which means they belong to the secondary sector. Since they are sold to other countries, they are considered exports and bring foreign money into the economy.
How a boom spreads through the economy
When chip demand rises, the benefits spread in a chain, often called the multiplier effect:
The boom is also visible in financial markets. Chip companies become more valuable, and their share prices increase as investors expect large future profits. Foreign investors bring in money, which can strengthen the country’s currency.
However, this also creates valuation risk. Share prices are based on what investors expect, not just current profits. If expectations are too high, prices can rise above the real value of the companies, which can lead to a bubble. One source warns that if AI adoption grows more slowly than the market expects, these high hopes could end in disappointment.
The risks
Over-specialization is a risk. Relying too much on one industry makes a nation vulnerable. It is similar to a bakery that only sells one type of cake: it works well while people want it, but it is risky if preferences change.
The business cycle is another risk. Demand for chips goes up and down over time. Since factories take years to build, companies might end up making too many chips just as demand drops. This extra supply lowers prices and reduces profits.
Customers can also become competitors. Amazon, Google, and Microsoft are now designing their own custom AI chips so they do not have to rely as much on outside suppliers. If these major buyers need fewer chips from others, sellers could lose business.
Market power is another concern. Nvidia is estimated to control 80-95% of the AI accelerator market, depending on the source. When one company dominates a market, almost like a monopoly, other firms have to depend on its choices.
Geopolitics also has a part. Export controls and trade restrictions are able to disrupt chip sales. Governments now see chips as strategic assets, similar to how oil was viewed during the industrial age.
What happens in a slowdown
If demand cools, the boom runs in reverse:
The AI chip boom is a clear example of how economics and finance are connected. Demand and supply determine prices, trade spreads the benefits internationally, and financial markets turn expectations into share prices. South Korea benefits greatly from its role in this chain, but this dependence also brings risks. The main lesson is that a country that profits from a trend should also prepare for when that trend slows down.
Sources:
https://www.weforum.org/stories/emerging-technologies/artificial-intelligence-microchip-ai-nvidia/
https://anandrathi.com/blog/how-ai-chips-are-reshaping-the-global-economy
The AI chip boom: supply and demand at work
The main reason for the boom is strong demand. The five largest tech companies are spending more than $700 billion on AI infrastructure this year. According to Goldman Sachs, global AI spending could reach $765 billion in 2026 and rise to $1.6 trillion a year by 2031.
At the same time, supply is limited. Advanced chips are difficult and costly to produce, and one Nvidia H100 chip costs around $40,000. Memory is a key bottleneck because each new chip generation needs more of it. For example, the H100 has 80GB of memory, while the newer B200 has 192GB. When demand is high and supply is tight, prices and profits go up. This basic economic principle explains the entire boom.
Where South Korea fits: comparative advantage
The theory of comparative advantage means countries succeed when they focus on what they make best and trade for other goods. South Korea is a good example of this. The AI chip supply chain entails several countries: Nvidia designs many leading chips, TSMC in Taiwan manufactures them, and Korean companies like Samsung and SK Hynix produce the memory. South Korea is a top player in the AI chip boom because of its strength in memory production.
Chips are high-tech manufactured goods, which means they belong to the secondary sector. Since they are sold to other countries, they are considered exports and bring foreign money into the economy.
How a boom spreads through the economy
When chip demand rises, the benefits spread in a chain, often called the multiplier effect:
- The amount of goods and services exported increases, as a result of which the GDP goes up.
- Chip makers are hiring more people and offering higher wages.
- Because the workers spend more, the shops, the builders and the suppliers all increase in size.
- The government imposes a greater amount of tax on both companies and workers.
The boom is also visible in financial markets. Chip companies become more valuable, and their share prices increase as investors expect large future profits. Foreign investors bring in money, which can strengthen the country’s currency.
However, this also creates valuation risk. Share prices are based on what investors expect, not just current profits. If expectations are too high, prices can rise above the real value of the companies, which can lead to a bubble. One source warns that if AI adoption grows more slowly than the market expects, these high hopes could end in disappointment.
The risks
Over-specialization is a risk. Relying too much on one industry makes a nation vulnerable. It is similar to a bakery that only sells one type of cake: it works well while people want it, but it is risky if preferences change.
The business cycle is another risk. Demand for chips goes up and down over time. Since factories take years to build, companies might end up making too many chips just as demand drops. This extra supply lowers prices and reduces profits.
Customers can also become competitors. Amazon, Google, and Microsoft are now designing their own custom AI chips so they do not have to rely as much on outside suppliers. If these major buyers need fewer chips from others, sellers could lose business.
Market power is another concern. Nvidia is estimated to control 80-95% of the AI accelerator market, depending on the source. When one company dominates a market, almost like a monopoly, other firms have to depend on its choices.
Geopolitics also has a part. Export controls and trade restrictions are able to disrupt chip sales. Governments now see chips as strategic assets, similar to how oil was viewed during the industrial age.
What happens in a slowdown
If demand cools, the boom runs in reverse:
- Prices for chips go down and profits decrease.
- Exports fall and a smaller amount of foreign money enters.
- Companies reduced their spending and eliminated jobs.
- The share prices go down and foreign investors might withdraw their money, causing the currency to weaken.
- The economy is growing more slowly since a great deal of that growth had been based on chips.
- Spread out into other industries such as cars, batteries, and services, so that the economy won't collapse if one sector fails.
- Continue to develop better products so that customers always have a need for them.
- In times of prosperity: both governments and companies can establish reserves for use during hard times.
The AI chip boom is a clear example of how economics and finance are connected. Demand and supply determine prices, trade spreads the benefits internationally, and financial markets turn expectations into share prices. South Korea benefits greatly from its role in this chain, but this dependence also brings risks. The main lesson is that a country that profits from a trend should also prepare for when that trend slows down.
Sources:
https://www.weforum.org/stories/emerging-technologies/artificial-intelligence-microchip-ai-nvidia/
https://anandrathi.com/blog/how-ai-chips-are-reshaping-the-global-economy
