South Korea’s stock market is facing a deepening sell-off as concerns over artificial intelligence (AI) spending, semiconductor valuations and rising financing costs rattle investors. The benchmark KOSPI fell another 5% on Tuesday, extending its losses as investors pulled back from AI-linked stocks.
The index had surged earlier this year, with its gains reaching around 116% at its record close in June. However, the subsequent correction has erased much of that rally, leaving the KOSPI up approximately 30% in 2026. The index has also fallen 39% from its peak of 9,386 earlier this year to 5,493.24 currently.
The sell-off accelerated in July, when the KOSPI fell 22%, and continued into October, with the index losing another 17% through October 16. The latest pressure has been particularly severe for semiconductor stocks, which account for a significant share of South Korea’s market.
SK Hynix shares have plunged around 35% from their peak, while Samsung Electronics has fallen approximately 22%. The weakness has spread to newer AI-linked businesses, too, with data-centre infrastructure company Elice Inc. dropping as much as 32% during its trading debut in Seoul.
Why is South Korea’s KOSPI falling?
The latest decline follows a global sell-off in AI and semiconductor stocks that wiped out more than $1 trillion in market value from 20 of the world’s most valuable AI and semiconductor companies last week.
South Korea has been particularly vulnerable because of its heavy dependence on Samsung Electronics and SK Hynix. Together, the two companies accounted for 44% of the KOSPI in May. As a result, a sharp decline in either stock can have a significant impact on the broader index.
Stronger-than-expected US inflation data has added to the uncertainty. Hotter inflation can reduce the likelihood of interest-rate cuts and revive expectations of rate hikes, raising borrowing costs and putting pressure on highly valued growth stocks.
According to a Reuters report, OpenAI told investors last week that its annualised revenue for September was nearly $50 billion, below a figure it had indicated earlier. At a separate event, the company had previously said its September revenue run rate was approaching $70 billion. The discrepancy reportedly stemmed largely from an effort to compare its revenue directly with that of rival Anthropic.
Concerns about funding are also emerging from within the semiconductor industry. Earlier this week, Broadcom chief executive Hock Tan said capital could become a bigger constraint on AI expansion than shortages of semiconductors, memory chips or electricity.
Daniel Munday, Principal Analyst at VT Markets, said the combination of inflation concerns and doubts about AI financing had intensified the sell-off across Asian markets.
“Hotter US CPI revived Fed hike bets, then cautious Fed comments pulled them back. At the same time, AI financing worries hit US tech, with CoreWeave and Oracle sold off on debt fears. Asia took the hit, and the KOSPI closed down 7.57%, its seventh straight loss, with foreign investors heavy sellers,” Munday said.
Munday also noted that US Treasury yields and the dollar eased overnight as investors sought safer assets. A Bloomberg report suggesting China held more US debt than official data showed also influenced market sentiment.
What lies ahead for AI stocks and the KOSPI?
The sell-off has intensified the debate over whether AI stocks can sustain their earnings growth and justify their valuations. Some analysts believe investors may need to diversify beyond the sector rather than remain heavily exposed to the AI trade.
In his latest GREED & fear note, Jefferies Global Head of Equity Strategy Chris Wood highlighted a warning from the brokerage’s global quantitative strategy team that “it has become time to diversify beyond AI.”
The report projects earnings growth for global AI stocks to slow from nearly 100% in 2026 to 30% in 2027 and 22% in 2028. By comparison, earnings growth for global stocks excluding AI is expected to decline from 16% in 2026 to 9% in both 2027 and 2028.
Wood has also highlighted rising borrowing costs as a central factor in the AI spending boom, raising questions about how long companies and investors can sustain the current pace of investment.
Munday said a rebound was possible after such a rapid fall, especially as US yields and the dollar eased. However, he cautioned that markets with heavy semiconductor exposure, including South Korea, Taiwan and Japan, could remain volatile until concerns about AI spending and interest rates subside.
Investors will be watching the US Federal Reserve’s October 28 meeting, further inflation data, oil prices and tensions in the Middle East.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
