Korean Tech Stocks Surge 22%: Global AI Spending Ignites Rally, Averting Chip Sector Crash

Korean Tech Stocks Surge 22%: Global AI Spending Ignites Rally, Averting Chip Sector Crash​

South Korean equities are staging a sharp reversal from last month’s historic volatility, as concentrated enthusiasm for tech hardware stocks drives the benchmark Kospi higher. The index advanced significantly on Thursday, rising up to 4.8%, pushing its rally from a July 30 low towards an estimated 22% gain.

How AI Demand is Fueling the Chip Sector Rally​

Heavyweight memory chipmakers Samsung Electronics Co. and SK Hynix Inc. led the day's advance, with both firms reporting gains of over 5%. This surge is underpinned by renewed enthusiasm for tech hardware stocks, driven by evidence of continued massive AI spending by global Big Tech firms.

The sharp sentiment reversal comes after several months marked by forced liquidations of leveraged chipmaker bets and significant trading halts that wiped out billions in retail wealth. The market is now buoyed by expectations that Samsung and SK Hynix will soon announce shareholder return plans.

Market Stabilization Rebounds from Leveraged Selloffs​

Market stability has been supported by a mix of regulatory intervention and investor behavior shifts. Recent government curbs placed on single-stock leveraged ETFs, combined with signs of investors reducing margin debt, have helped stabilize the highly volatile market.

Kang DaeKwun, chief executive officer at Life Asset Management, commented that the prior selloff represented an overshot during the unwinding of leveraged positions. He added that the current rebound is a natural correction as trading flows have stabilized in the system.

Global Winds and The AI Bottleneck​

A subdued US inflation report released Wednesday provided a fresh tailwind for the Korean market. Eased concerns regarding immediate interest-rate hikes by the Federal Reserve supported domestic chip peers who trade on US exchanges.

However, one expert cautioned that sustained rally depends on clearer direction in two key areas: the ongoing AI narrative and future movements of US interest rates. Qian Zhang, an emerging markets equities investment specialist at Baillie Gifford, highlighted a critical supply constraint.

Retail-Driven Rally Clashes with Foreign Flows​

The Kospi has appreciated by over 60% this year, a growth largely driven by retail investors. Yet, the index remains approximately 24% down from its peak in late June after tumbling 22% during July—its worst month since the global financial crisis.

Foreign investors continue to be net sellers overall, having withdrawn more than $100 billion from Korean shares this year amid concerns that the market had become too crowded and overheated. Some overseas funds, however, have begun initiating buybacks as selloffs pushed valuations down to more attractive levels.

Exploding Demand Signals a Manufacturing Limit​

Despite the persistent threat of competition from China throwing cold water on memory stock surges, near-term demand outlook remains robust. The spread of AI into new applications and increasing everyday usage is creating intense requirement for high-capacity chips.

Qian Zhang pointed to this exploding demand caused by AI agents and physical AI, noting that while a limited supply capacity exists today, it represents a crucial bottleneck. He concluded that only a few companies in the world can resolve this immediate manufacturing constraint at such rapid speed.