South Korean Chip Stocks Plunge as Meta's AI Strategy and Apple Deals Spark Oversupply Fears

South Korean Chip Stocks Plunge as Meta's AI Strategy and Apple Deals Spark Oversupply Fears​

AI Capacity Doubts Trigger Major Selloff in Korean Tech Stocks​

South Korean equities experienced a significant downturn as concerns regarding the sustainability of the AI boom emerged. The Kospi Index fell as much as 7%, reflecting investor unease over excess capacity in the rapidly expanding AI computing sector. Market heavyweights, including Samsung Electronics Co. and SK Hynix Inc., saw declines of at least 8% each.

The selloff caused a temporary suspension of program trading on the Korea Exchange following an outsized drop in Kospi futures. US counterparts such as Micron Technology Inc. and Sandisk Corp. also closed down by over 10%. This sharp swing underscores how quickly market sentiment can shift when questions arise about the durability of previous AI-driven surges.

Corporate Moves Raise Concerns Over Chip Dominance​

A primary catalyst for the decline was news regarding Meta Platforms Inc.'s future strategy. Meta is developing a cloud infrastructure business that intends to sell access to its AI computing power and models, Bloomberg News reported. This development fueled fears among investors regarding potential overcapacity in the market.

Furthermore, attention shifted to Apple Inc. as it reportedly entered negotiations to purchase chips from two Chinese semiconductor makers. These negotiations raised concerns that the competitive edge traditionally enjoyed by major South Korean chipmakers like Samsung Electronics and SK Hynix might be eroding.

Analysts Scrutinize Investment Focus and Oversupply Risk​

Market observers are increasingly scrutinizing return on investment (ROI) alongside AI spending levels, according to analysts. Ha SeokKeun, chief investment officer at Eugene Asset Management in Seoul, stated that while the "AI capex story remains intact despite the Meta headlines," investors are now becoming more selective.

The potential deal between Apple and Chinese manufacturers could specifically pressure sentiment surrounding commodity DRAM pricing power, which is a key area for Korean firms to dominate. Ha added that this development could affect the standing of Samsung Electronics and SK Hynix.

Vulnerability Highlighting Korea's Market Dependence​

Despite having been the world’s best-performing market this year, South Korea remains heavily reliant on its chip manufacturing sector. This dependence makes the nation's equities acutely vulnerable to shifts in sector sentiment, as demonstrated by today's volatility.

Gerald Gan, chief investment officer at Reed Capital, suggested that the weakness seen in the Korean market was partly influenced by poor performance overnight in the US markets. He also posited that the market may be in the process of "flushing out speculative, leveraged retail positions" which had been a primary driver of the index's prior gains.