South-east Asian start-ups missing out on region's AI-fuelled tech boom

South-east Asia is fast emerging as an investment hot spot for artificial intelligence (AI) leaders like Nvidia and Microsoft, which are ploughing money into cloud services and data centres.

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But the region's own young tech firms are failing to capitalise on the boom.

While the world's biggest firms are set to splurge up to US$60 billion (S$81.5 billion) over the next few years in South-east Asia as its young populations embrace video streaming, online shopping and generative AI, little is flowing to the region's start-ups that have AI at their core. Investors are wary about betting on unproven entities, and the region has yet to show it can produce innovative firms that can scale significantly.

Venture investment in South-east Asia's young AI firms has hit just US$1.7 billion so far in 2024, out of about US$20 billion for the Asia-Pacific region as a whole, data from Preqin shows. Only 122 AI funding deals have taken place in the region in 2024, versus the Asia-Pacific total of 1,845.

The disconnect is raising doubts about the emerging region's ability to build up its private sector and compete with the US and China, the world's AI leaders. Venture investors' scepticism towards South-east Asia's AI efforts is weighing on the growth potential of its home-grown tech sector.

Globally, investors are racing to tap the AI opportunity; but for now their focus is largely on the US and China. The US snatched US$68.5 billion in AI funding in 2024, while China took up about US$11 billion, Preqin data shows.

On the surface, South-east Asia and its population of 675 million have what it takes: It counts over 2,000 AI start-ups, more than in South Korea and almost as many as in Japan and Germany, a report by tech advisory firm Access Partnership showed.