AI Sell-Off Sends South Korea Stock Market to 3-Month Low 2026

The South Korea stock market dropped to its lowest level in three months as the AI sell-off intensified, with investors fleeing chip stocks amid rising concerns over massive borrowing by AI companies to fund datacenter expansions.

Why the AI Sell-Off Is Hitting South Korea Hard

South Korea's benchmark Kospi index fell by 11.5% on Tuesday, dragged down by heavy losses in the country’s two largest semiconductor makers. SK Hynix and Samsung Electronics both declined by more than 10%, reflecting a broad panic over the sustainability of AI investments.

The sell-off was not limited to Seoul. US chip stocks also tumbled when Wall Street opened, with Intel, Advanced Micro Devices, Sandisk, Western Digital Corp, and Seagate Technology all falling by more than 4%. The Nasdaq 100 briefly entered correction territory, dropping more than 10% below its early June record high before recovering to end roughly flat.

Key Factors Behind the Market Drop

China’s Chip-Making Progress

Renewed worries were sparked by a report from The Information that China has begun mass production of domestic deep ultraviolet (DUV) chip-making tools. This development threatens the competitive edge of global chip leaders. Jing Jie Yu, equity analyst at Morningstar, called the sell-off “largely a kneejerk reaction and overdone,” but noted the market was spooked by China’s rapid progress.

Circular Funding Concerns

Investors are increasingly jittery about the “circular funding” at the heart of the AI industry, where companies borrow heavily to build datacenters, hoping future AI revenue will repay the debt. This model is now under scrutiny.

Comparison of Major Chip Stock Declines (August 2024)

Key Takeaways for Investors

• The South Korea stock market is highly sensitive to global AI sentiment due to its dominant semiconductor sector.
• China’s advances in chip equipment manufacturing are a real long-term threat to incumbents.
• The AI “circular funding” model may lead to further volatility if investor confidence wanes.
• Apple bucked the trend, hitting a $5 trillion valuation as a safe-haven alternative.

FAQ

The South Korea stock market remains a bellwether for AI industry health, with investors closely watching chipmaker earnings and funding cycles. While some see the dip as a buying opportunity, others warn that underlying risks persist.