Southeast Asia, a region of over 675 million people, is emerging as a focal point for global investment in cloud services and data centres, with tech giants like Nvidia and Microsoft planning to invest up to $60 billion in the coming years.
However, the region’s own AI startups are struggling to attract attention from venture capitalists, according to a Bloomberg report,.
Despite boasting over 2,000 AI startups, the region has secured just $1.7 billion in funding this year, a small fraction of the $20 billion invested in the Asia-Pacific, according to Preqin data.
This disparity raises concerns about the region’s ability to compete with AI leaders in the US and China.
What hinders AI growth in Southeast Asia?
Southeast Asia’s AI ecosystem is caught in a paradox.
While its young and tech-savvy population increasingly embraces digital technologies like generative AI, video streaming, and e-commerce, the region’s AI startups face significant hurdles.
Investors remain hesitant to fund unproven entities, particularly in a region with cultural and economic diversity that complicates scaling AI solutions.
The region has recorded just 122 AI funding deals this year, compared to 1,845 across the broader Asia-Pacific.
Globally, the US attracted $68.5 billion in AI funding in 2024, while China secured $11 billion, underscoring the stark gap in capital flows to Southeast Asia.
Investors often question whether local tech companies can scale profitably on the global stage, with challenges stemming from fragmented datasets and varying infrastructure across countries like Indonesia, Malaysia, and the Philippines.
Singapore, however, stands out as a bright spot.
Ranked third globally in AI readiness, the city-state is home to numerous AI scientists and a thriving tech hub.
But even Singapore cannot single-handedly address the region’s lack of foundational AI models, robust software engineering, and scalable hardware capabilities, areas critical to global AI competitiveness.
Governments, ecosystems, and the path forward
Southeast Asian governments have recognised AI’s potential and are developing national AI frameworks to address the funding gap.
Singapore, for instance, has introduced initiatives to support AI startups through state-backed investment vehicles.
However, experts argue that fragmented national strategies need to give way to coordinated regional efforts.
A report by Google, Temasek, and Bain highlights that Southeast Asia’s private capital markets are experiencing a downturn, with funding expected to hit record lows.
The lack of lucrative exits and weak IPO activity further deters venture capitalists from backing startups, leaving many without the financial support necessary to scale.
Despite the challenges, Southeast Asia’s broader digital economy is growing rapidly, supported by a rising middle class and expanding mobile and internet access.
Countries in the region are also relatively insulated from geopolitical tensions between the US and China, providing a unique opportunity for long-term stability in AI investments.
Some AI startups in the region are finding success by focusing on early-stage data collection and organisation, creating the foundation for scalable AI solutions.
Singapore-based Patsnap Pte has spent nearly two decades building comprehensive datasets spanning patents, chemicals, and other industries, which are now being used to train advanced AI models.
Meanwhile, Indonesia’s Alpha JWC, in partnership with the Pijar Foundation, is creating a sandbox environment to connect emerging AI talent with large corporations.
Experts emphasise that the ecosystem must evolve for the region to unlock its AI potential. Regulators, governments, and industry stakeholders need to collaborate more effectively to ensure that Southeast Asia can build a competitive AI industry.
While the funding shortfall is a significant obstacle, the region’s growing digital economy, strategic geographic position, and untapped market potential provide a promising foundation for future growth.
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