Southeast Asia has become a focal point for global tech giants like Nvidia and Microsoft, who are investing heavily in cloud services and data centers. These investments, projected to reach $60 billion over the next few years, are fueled by the region's young and tech-savvy population embracing trends like video streaming, e-commerce, and generative AI. However, the region’s own AI startups have not been able to capitalize on this momentum. Skepticism about the scalability and innovation potential of local startups has led to cautious investment, leaving many of these firms struggling to secure funding.
The Funding Gap in Numbers
Despite its promise, Southeast Asia’s AI startups secured only $1.7 billion in funding in 2024, a small portion of the $20 billion invested in AI across the Asia-Pacific region. Moreover, only 122 funding deals were recorded in the region compared to 1,845 deals across APAC. This funding disparity highlights the difficulties Southeast Asia faces in competing with the US and China, the world’s AI powerhouses, which attracted $68.5 billion and $11 billion in AI investments, respectively.
The Potential vs. Reality
At first glance, Southeast Asia appears well-positioned to thrive in the AI landscape. With over 2,000 AI startups, the region outnumbers South Korea and comes close to Japan and Germany in terms of entrepreneurial activity. Singapore stands out, ranking third in the Global AI Index, thanks to its concentration of AI talent and robust infrastructure. However, the broader region—including nations like Indonesia, the Philippines, Thailand, and Malaysia—faces unique challenges. Differences in culture, language, and infrastructure create barriers to developing unified datasets, which are essential for scalable AI solutions.
Barriers to Scale and Growth
The challenges facing Southeast Asia’s AI sector are not limited to cultural and linguistic diversity. The region’s startups also lack access to foundational AI technologies and large-scale software engineering capabilities. Unlike Silicon Valley or China, Southeast Asia does not yet have the infrastructure to support the development and deployment of cutting-edge AI systems at scale. The venture capital ecosystem is further hindered by limited exit opportunities, such as IPOs, which are exacerbated by underperforming public markets.
Research from Google, Temasek, and Bain & Co. indicates that private funding for Southeast Asian startups has dropped to its lowest levels in years. This decline reflects a broader hesitancy among investors who view the region as lacking the profitability and scalability seen in more established markets.
Government Efforts and Regional Collaboration
Despite these challenges, governments in Southeast Asia are actively working to foster AI innovation. Countries like Singapore have established national AI frameworks and provided funding to startups through government-backed investment programs. However, regional collaboration remains a significant hurdle. Nations in Southeast Asia often prioritize vastly different agendas—some focusing on high-tech development, others addressing basic infrastructure needs. This divergence makes it difficult to create a cohesive plan for AI-driven growth across the region.
Experts emphasize the need for coordinated efforts among governments to prioritize “moonshot” innovations that could transform Southeast Asia into a global AI hub. Without such alignment, the region risks missing out on opportunities to leverage its growing digital economy.
Opportunities in Data-Driven AI
Southeast Asia’s competitive advantage may lie in early-stage AI opportunities, particularly in data collection and organization. Building high-quality datasets can provide a foundation for creating scalable AI solutions. Singapore-based Patsnap exemplifies this approach. Over 17 years, the company has developed vast datasets covering patents, chemicals, and food industries, which now serve as the backbone of its sector-specific AI models.
Similarly, Indonesia’s Alpha JWC is fostering AI innovation through programs that connect startups with large corporations. These initiatives aim to bridge the gap between emerging talent and real-world applications, offering a blueprint for sustainable growth in the region.
The Role of Digital Economy and Geopolitics
While its AI sector faces hurdles, Southeast Asia’s digital economy is growing at double-digit rates, driven by a rising middle class, increasing mobile and internet penetration, and a youthful, tech-savvy population. Moreover, the region is relatively insulated from geopolitical tensions between the US and China, making it an attractive destination for foreign investors.
This growth offers a strong foundation for the development of AI applications in e-commerce, fintech, and digital infrastructure. However, capitalizing on this momentum requires a cohesive ecosystem where governments, regulators, investors, and startups work in synergy.
The Path Forward
Southeast Asia holds immense potential to become a global player in AI, but significant challenges remain. The region must address gaps in funding, infrastructure, and collaboration to unlock its full potential. By focusing on early-stage opportunities like data-driven innovation and fostering regional cooperation, Southeast Asia can position itself as a key player in the global AI landscape.
The road ahead requires a shared vision and collective effort from all stakeholders—governments, investors, startups, and corporations alike. With the right strategies in place, Southeast Asia can ride the AI wave and solidify its position in the global tech ecosystem.