South Korea AI Race Cuts Naver Cloud and NC AI, Sparking Backlash Over Wild Card Entry

South Korea Narrows National AI Model Competition to Three Teams

South Korea AI development took a decisive turn as the Ministry of Science and ICT eliminated two major players from its closely watched national AI foundation model project. Teams led by Naver Cloud and NC AI were dropped from the competition, leaving LG AI Research, SK Telecom, and Upstage to advance to the second phase 1

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. Naver shares slid as much as 5.4% and NCSoft fell 7% following the announcement 1

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. LG AI Research achieved the highest overall score in the latest evaluation round, positioning itself as a frontrunner in South Korea's government-led AI project to build a homegrown AI foundation model.

Technology Originality Requirements Trigger Naver Cloud and NC AI Elimination

The Ministry of Science and ICT disqualified Naver Cloud for failing to meet critical technology originality requirements, specifically around training from scratch 3

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. Although Naver Cloud used licensing-free open-source components for video and audio encoders, the company failed to demonstrate that it trained and developed the model with newly initialized weights. Second Vice Science Minister Ryu Je-myung explained that even when using existing open models, teams must show "concrete, demonstrable efforts to completely reset the weights and rebuild them using data secured independently" 3

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. The evaluation assessed technological autonomy across technical, policy, and ethical dimensions, with Science and ICT Minister Bae Kyung-Hoon emphasizing the objective is achieving world-class status and serving as a source of national pride 1

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Wild Card Entry Decision Sparks Industry Backlash

The ministry's abrupt decision to recruit an additional consortium through a wild card entry has triggered mounting criticism over fairness and consistency 2

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. Originally, the project planned to eliminate one team at each stage across three phases, leaving only two teams by the end of 2027. Instead, the government eliminated two consortia and announced it would allow one additional team to join, guaranteeing the same support including graphics processing units (GPUs) 2

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. Industry officials expressed concerns that changing rules mid-competition undermines trust. "If things are not handled fairly, trust in the process and in the results could be undermined later on," one industry official noted 2

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Major Tech Firms Decline Second Chance at Sovereign AI Competition

Despite being offered another opportunity, eliminated companies have concluded the project carries more costs than benefits. Both Naver Cloud and NC AI stated they "respect the government's decision" but "will not reapply for the project" 2

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. Kakao, which was eliminated in earlier rounds and now has a second chance, also declined to participate in the wild card selection, stating it believes it is better not to pursue another bid. KT has yet to make a decision . The reluctance highlights concerns about competing against rivals who have already secured GPU resources and datasets with a head start in developing their foundation models.

Sovereign Control and Data Security Drive National AI Model Initiative

The multiyear contest started with 15 applicants and aims to identify Korea's sovereign AI models that will secure technological autonomy and protect domestic industries from dependence on foreign models 1

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. Under the program, teams face evaluation and elimination roughly every six months until only two winners remain by 2027. The government's comprehensive evaluation framework requires models to guarantee sovereign control without external licensing constraints while ensuring transparency and compliance with open-source licensing rules 3

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. Controversy surrounding the use of foreign technology has highlighted intense public interest, with rival firms questioning whether some teams truly satisfied the requirement to build their models from scratch. The ministry defended its approach, stating its goal is "to make the best use of the resources the government has secured now, so that as many companies as possible can benefit from them and accelerate their technology development" .