South Korea’s stock market suffered a sharp reversal recently as investors rushed to lock in profits in semiconductor heavyweights, raising fresh questions over the durability of the artificial intelligence-led rally that has powered global equities over the past year.
The benchmark KOSPI has fallen about 8-10 per cent, with the sell-off severe enough to trigger temporary trading halts. Chip giants Samsung Electronics and SK Hynix, which had become the primary drivers of the market’s surge, slumped by double digits during the session, dragging the broader index lower. Foreign investors have also stepped up selling, adding to market volatility.
The sell-off was amplified by concerns over a possible reclassification of South Korea in MSCI indices, debate around capital-gains taxation and expectations of large pension fund rebalancing, all of which fuelled panic selling in a market increasingly concentrated in a handful of AI-linked stocks.
Profit-taking, not a bubble burst?
Yet some market strategists argue the correction is more a function of profit-taking than the bursting of an AI bubble.
“I’m not sure if the phrase ‘bubble bursting’ is correct here,” Adrian Mowat, Emerging Market Equity Strategist, told ET Now. The moves in Micron, SanDisk, SK Hynix and Samsung shares, he said, “are all consistent with very dramatic positive earnings revisions because the supply-demand dynamics for semiconductors is so tight, particularly the type of memory chip used by AI data centres.”
AI chipmakers still backed by strong fundamentals
The comments come after an extraordinary rally in global memory-chip makers. Shares of SK Hynix have surged more than 300 per cent in 2026, while several global storage and memory names have posted gains of several hundred per cent, fuelled by insatiable demand for chips used in AI servers and data centres.
Mowat cautioned that the pace of gains may become harder to sustain if earnings revisions begin to moderate.
“I do think you could get to a situation where the second differential starts to roll over, and you’re no longer getting these very, very positive earnings revisions. And perhaps the momentum behind these stocks comes off,” he said.
Valuations not yet in bubble territory
However, he stressed that valuations in Korean memory-chip stocks remain far from bubble territory.
“We’re going to spend the rest of this year seeing high volatility in these memory names. But let’s not forget that their valuations are not bubble territory. Their P/E multiples actually look quite reasonable, and there’s no clear evidence that there’s a big supply coming on in this sector.”
The next phase of the AI trade
The latest correction has also revived a broader debate over whether the next phase of the AI trade can continue to be driven solely by semiconductor companies.
“We need to think about the next phase for AI,” Mowat said. “The next phase should be which companies are actually pushing up revenue or reducing costs by applying AI.”
The correction in Seoul has reverberated across global markets, with AI-related technology shares in Japan and the United States also coming under pressure. Investors have increasingly questioned whether the earnings potential of AI applications can justify the massive spending on data centres and semiconductor infrastructure.
(Disclaimer: The above article is meant for informational purposes only, and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money-related decisions.)
