South Korean stocks plunge as much as 7% as AI jitters hammer Samsung, SK Hynix

South Korean equities suffered one of their sharpest declines this year on Thursday as mounting concerns over the artificial intelligence (AI) investment cycle triggered a broad selloff in semiconductor stocks, dragging the benchmark Kospi Index down by as much as 7 per cent.

The steep decline came after fresh questions emerged over the sustainability of the global AI-driven chip rally, with heavyweight technology stocks bearing the brunt of investor selling. Samsung Electronics and SK Hynix, the country's two largest chipmakers, each fell more than 8 per cent during intraday trade, wiping billions of dollars off their market value.

The sharp losses prompted the Korea Exchange to temporarily suspend program selling after a steep drop in Kospi futures, a mechanism designed to curb excessive market volatility.

AI optimism gives way to valuation concerns

The selloff follows growing signs that investors are becoming more cautious about the AI infrastructure boom that has powered global semiconductor stocks over the past two years.

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Investor sentiment weakened after reports that Meta Platforms is exploring a cloud infrastructure business that would sell AI computing power and AI models to external customers. While the move signals continued investment in AI, it has also reignited concerns that the industry could eventually face excess computing capacity, raising questions about future returns on the billions of dollars being poured into AI infrastructure.

The weakness in South Korea mirrored losses on Wall Street overnight, where US memory-chip maker Micron Technology and storage company Sandisk both ended the session down more than 10 per cent.

The combined selloff has intensified concerns that valuations across the semiconductor sector may have run ahead of earnings expectations after an extraordinary AI-fuelled rally.

Apple-China chip report adds pressure

Adding to investor anxiety were reports that Apple is in discussions to source memory chips from two Chinese semiconductor manufacturers — ChangXin Memory Technologies (CXMT) and Yangtze Memory Technologies Co. (YMTC).

The development raised fears that South Korean memory giants could face increasing competition, particularly in the commodity DRAM market where Samsung Electronics and SK Hynix currently enjoy significant pricing power.

Korean market exposed to chip sector swings

South Korea has been among the world's best-performing equity markets this year, largely driven by strong gains in semiconductor stocks as global demand for AI hardware surged.

However, the market's heavy concentration in Samsung Electronics and SK Hynix has also made it particularly vulnerable to shifts in investor sentiment surrounding the AI trade.

Market participants said the presence of leveraged exchange-traded funds (ETFs), popular among retail investors, has amplified both gains and losses, contributing to sharper market swings.