President Lee Jae Myung in his annual budget speech to parliament said 21.3 trillion won (US$16 billion) would be allocated to chipmaking and artificial intelligence, spanning data centers to robotics.

"We will make bold investments in AI and future growth engines to boost our economy's growth potential," he said, adding that the figure was "nearly double this year's amount".

On the defense budget, the government wants to see an increase of around eight percent from this year to 73.3 trillion won, aiming to secure nuclear-powered submarines and KF-21 fighter jets.

Lee said Seoul aims to "rapidly transform our military into a smart, elite force by establishing integrated manned and unmanned systems based on AI, robots and drones".

North Korea has recently tested a slew of weapons, including a new precision-guided torpedo system and an intermediate-range hypersonic missile, both of which it said used AI technology.

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And last year, Seoul announced an agreement with Washington to build nuclear-powered submarines, with Pyongyang slamming the submarine program as a "dangerous attempt at confrontation".

Overall, the 2027 budget plan totals 821 trillion won, a 12.8 percent increase on-year, making it the largest budget proposal on record.

Lee now needs parliament to pass the budget proposal, which is likely given his party's majority.

'Mega projects'

The country is a tech powerhouse, home to Samsung Electronics and SK hynix, two of the world's three biggest makers of memory chips – components in huge demand thanks to the AI boom.

Lee said the government will invest 4.7 trillion won to support "frontier AI development projects, with the aim of achieving world-leading performance for our own AI model, a national strategic asset".

In June, Lee announced a public-private partnership centred on "three mega-projects" – aiming to expand chip production hubs nationwide, establish robotics research and development centers, and build gigawatt-scale AI data centers.

The government at the time unveiled plans for nearly $1.2 trillion in investment, equivalent to more than two-thirds of South Korea's GDP.

Samsung and SK hynix also in June announced plans to invest more than 4,755 trillion won in South Korea, marking a record level of corporate investment in the country.

South Korean chipmakers have seen profits and share prices skyrocket as frenzied demand for AI infrastructure squeezes the global supply of memory chips.

The boom has also spurred chip engineers and other workers to seek higher payouts in tense negotiations at companies including Samsung and SK hynix.

In September, Seoul announced plans for a 162.3 trillion won "Future Fund" next year, aimed at channeling record tax revenues from the country’s chip boom into long-term growth.

Lee said Monday the government would also invest 2.1 trillion won in electricity, water supply and industrial complex infrastructure, as semiconductor plants require a stable power supply around the clock, 365 days a year.

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