South Korea's KOSPI index experienced significant volatility this week, falling as much as 12.6% before rebounding slightly, driven by disappointing earnings from major semiconductor manufacturers. The sharp decline marks a dramatic reversal from recent gains and reflects growing investor concerns about the sustainability of artificial intelligence spending.
The sell-off was triggered by SK Hynix, a chipmaker essential to AI data center expansion, reporting results that fell short of investor expectations. Despite posting record profits for the second quarter, the company's performance disappointed markets. SK Hynix shares dropped as much as 20% before recovering to a 10% loss. Fellow chipmaker Samsung Electronics also tumbled, closing 5% lower. The two companies together account for more than half of the KOSPI's market capitalization, giving them outsized influence over the index's movement.
The KOSPI closed down 6% after falling almost 11% the previous day, reaching its lowest level since early April. This represents an almost 40% decline from the peak reached just over a month ago. Trading was halted twice in two consecutive sessions after an 8% plunge triggered a market-wide circuit breaker.
Analysts attributed the sell-off to investor disappointment about the long-term outlook for chip demand. Gary Tan, a portfolio manager at Allspring Global Investments in Singapore, said: "SK Hynix delivered strong results, but in today's AI market strong is no longer enough. Investors were looking for additional catalysts, particularly around long-term agreements and shareholder returns, to support a memory sector that has become the epicentre of the AI trade."
The downturn reflects broader concerns across global markets about whether technology companies can sustain their massive spending on AI infrastructure. Shares in US chipmakers including Intel, Advanced Micro Devices, and others fell on Wall Street, while Taiwan's TSMC dropped 3%.
Analysts noted that retail investors who had driven the earlier rally, many using borrowed money, accelerated the sell-off as they withdrew funds. This volatility highlights how small-time investors leveraging credit amplified both the recent gains and the subsequent losses.
South Korea's finance minister, Koo Yun-cheol, told the national assembly that the government was reviewing market stabilization measures in response to the turbulence.
The KOSPI's sharp swings demonstrate how semiconductor stocks have become central to investor sentiment about the AI sector. While chipmakers benefit from massive capital expenditures by technology companies building data centers and computing infrastructure, concerns about whether current valuations reflect realistic returns have created significant market uncertainty in recent weeks.