AI boom turns into gloom: South Korea slips into bear market, falls 20% from peak

South Korea's KOSPI slipped into bear market territory as investors sold AI-linked chip stocks despite Samsung's record profit forecast. The swing reflected growing doubts over whether the AI-led chip boom can sustain current valuations.

In Short

• KOSPI index enters bear market after 20% fall since June peak
• Samsung posts record profits but shares drop amid growth concerns
• Wall Street tech stocks fall, spreading selloff to Asian markets

Not long ago, South Korea and Taiwan were the biggest stars of the global artificial intelligence (AI) rally.

Investors were piling into semiconductor stocks, betting that the AI boom would continue to fuel explosive earnings growth. The rally was so strong that Asian markets overtook India as some of the world's best-performing equity markets this year.

Now, the table seems to have turned.

South Korea's benchmark KOSPI index entered bear market territory on Wednesday after falling more than 20% from its record closing high of 9,114.55 on June 22. The benchmark tumbled over 5% during the session as investors dumped AI-linked chip stocks despite Samsung Electronics reporting record profits.

The selloff wasn't confined to Seoul. Technology stocks dragged Wall Street lower overnight, with the Nasdaq Composite falling 0.6% and the Philadelphia Semiconductor Index losing nearly 5%, extending its decline to around 13% over the past month.

The sharp reversal suggests investors are beginning to question whether the AI rally that has powered global markets for the past year can continue at the same pace.

FROM AI DARLING TO BEAR MARKET

The speed of the correction has caught investors by surprise.

On June 22, the KOSPI had closed at an all-time high of 9,114.55, fuelled by optimism surrounding AI infrastructure spending and booming demand for advanced memory chips.

Less than three weeks later, the benchmark has fallen more than 20% from that peak, a level widely considered by market participants to confirm that a market has entered bear territory.

Trading was extremely volatile on Wednesday. The KOSPI initially recovered to trade as much as 1.8% higher before reversing sharply to fall as much as 6.1%, forcing authorities to trigger a "sidecar" trading curb that temporarily halted algorithmic trading.

The benchmark had already plunged 4.9% on Tuesday, triggering a circuit breaker for the sixth time this year and only the 12th time in the market's history.

WHY DID SAMSUNG'S RECORD RESULTS FAIL TO IMPRESS?

Ordinarily, Samsung Electronics' earnings would have lifted market sentiment.

The world's largest memory chipmaker forecast a 19-fold jump in April-June operating profit to 89.4 trillion won, marking its third consecutive quarter of record earnings.

Instead, Samsung shares fell more than 6%, while rival SK Hynix declined over 3%.

The reason? Investors are looking beyond today's earnings and worrying about tomorrow's growth.

"This is a record for Samsung, but rather than placate the markets, these strong results have led to fears that the AI chip sales boom cannot be sustained," Kathleen Brooks, Research Director at XTB, told Reuters.

Adding to the pressure was a Reuters report that Chinese AI startup DeepSeek is developing its own AI chip, raising concerns that some of the biggest buyers of AI hardware may eventually reduce their dependence on global semiconductor companies.

"There seems to be spill-over effects from the previous session's slump, which came despite Samsung Electronics' strong earnings, while there are worries about a slowdown in memory price growth and uncertainty over an earnings 'peak-out'," Han Ji-young, an analyst at Kiwoom Securities, told Reuters.

NASDAQ SELLOFF SPREADS TO ASIA

The nervousness first surfaced on Wall Street.

The Nasdaq Composite slipped 0.6% overnight, while the Philadelphia Semiconductor Index dropped nearly 5% as investors reassessed whether the extraordinary pace of AI-related capital spending can continue.

Those concerns quickly spread across Asia, where semiconductor stocks have been among the biggest beneficiaries of the AI boom.

The selloff highlighted just how closely Asian technology markets remain tied to investor sentiment around AI spending and chip demand.

GOVERNMENT STEPS IN

The sharp swings prompted South Korean authorities to reassure investors.

Finance Minister Koo Yun-cheol said the government would closely monitor risks linked to recently introduced single-stock leveraged exchange-traded funds (ETFs), which could amplify volatility in semiconductor shares.

Foreign investors sold shares worth 487 billion won during Wednesday's session, although the outflow was much smaller than the trillion-won selling seen in recent days, according to Reuters.

Deputy Finance Minister Moon Ji-sung also said pressure from foreign investor profit-taking is expected to ease in the second half of the year. He pointed to expected demand for the Korean won from SK Hynix's upcoming US listing, which is expected to be one of the world's largest share sales.

THE AI STORY ISN'T OVER YET

Despite the sharp correction, South Korea remains the world's best-performing major stock market in 2026.

The KOSPI is still up around 74% so far this year, driven largely by the rally in AI-linked semiconductor stocks that made it one of the strongest-performing equity markets globally.

The recent correction therefore reflects a reassessment of valuations rather than a complete collapse of the AI investment story.

Goldman Sachs also remains constructive on South Korean equities.

According to a note quoted by Business Insider, the investment bank believes earnings momentum is improving across a broader range of sectors beyond semiconductor companies.

"Incremental foreign inflows have already begun rotating toward other AI-related beneficiaries and industrials, and we expect this trend to continue as investors seek exposure to the broader AI supply chain and opportunities that are uncorrelated with AI," Goldman Sachs said.

WHAT IT MEANS FOR GLOBAL MARKETS

The past fortnight has shown how quickly investor sentiment can change.

Only a few days ago, South Korea and Taiwan were being celebrated as the biggest winners of the AI revolution, with chip stocks powering markets to record highs and outperforming India.

Now, concerns over whether AI spending has peaked, combined with rising competition from Chinese players and expensive valuations, have sparked a sharp correction.

Even so, the broader AI investment theme remains intact for many analysts.

The current selloff appears less about the end of the AI boom and more about investors resetting expectations after one of the strongest technology rallies seen in years.

(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)

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