South Korea’s benchmark KOSPI fell 5% on Tuesday as a chip-led sell-off in artificial intelligence stocks deepened, cutting its 2026 gains to about 30% from roughly 116% at its record close in June. The index has dipped over 40% from its peak of 9,386 earlier this year.
Chip heavyweight SK Hynix Inc. headed for its lowest close since April. Data-center infrastructure company Elice Inc. plunged as much as 32% in its trading debut in Seoul. Both AI bellwethers SK Hynix and Samsung have plunged 35% and 22%, respectively.
The index now trades about 39% below that peak. The decline gathered pace in July, when the KOSPI fell 22%, and extended into October, with the index losing another 17% through October 16.
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What’s driving the sell-off?
The latest leg of the decline follows a global sell-off in AI-linked stocks, which last week wiped out more than $1 trillion in market value from 20 of the world’s most valuable AI and semiconductor companies.
South Korea has been particularly vulnerable to the rout because of its heavy exposure to memory chipmakers Samsung Electronics and SK Hynix. The two companies accounted for 44% of the KOSPI in May.
The sell-off gathered momentum as investors grew increasingly concerned about the credit risks associated with heavy AI spending. Further, stronger-than-expected US inflation data has added to the pressure, sending the index down 7.57% to 5,554.22.
OpenAI’s revenue projections add to investor concernsQuestions over the sustainability of AI spending intensified after OpenAI told investors last week that its annualised revenue for September was nearly $50 billion, below the figure it had indicated earlier, Reuters reported.
At a separate event, the company had previously told investors that its September revenue run rate was approaching $70 billion. The discrepancy largely stemmed from an effort to make a direct comparison with revenue figures from rival Anthropic, according to the Reuters report.
The figures have added to investor scrutiny of the financial assumptions underpinning the AI rally, particularly as companies continue to commit substantial sums to infrastructure and computing capacity.
AI’s next hurdle may be the cost of capitalConcerns about financing are also coming from within the semiconductor industry. Earlier this week, Broadcom CEO Hock Tan said capital could become a bigger constraint on AI expansion than shortages of semiconductors, memory chips or electricity.
Intel CEO Lip-Bu Tan echoed the concern, pointing to rising capital costs and the need for companies making heavy AI investments to demonstrate adequate returns.
The warnings come as investors reassess whether the pace of AI investment can be sustained amid stretched valuations, intensifying competition and uncertainty over when the spending will translate into profits.
What lies ahead for AI stocks?The debate over AI valuations is also prompting calls for investors to diversify beyond the sector. In his latest GREED & fear note, Jefferies’ Global Head of Equity Strategy Chris Wood highlighted a warning from the firm’s global quantitative strategy team that “it has become time to diversify beyond AI.”
The report projects earnings growth for global AI stocks to slow from nearly 100% in 2026 to 30% in 2027 and 22% in 2028. By comparison, earnings growth for global stocks excluding AI is expected to decline from 16% this year to 9% in both 2027 and 2028.
Valuations further underline the divide. Global AI stocks trade at about 23 times forward earnings on an equal-weighted basis, compared with 13 times for the global ex-AI basket, according to the report.
Wood has pointed to rising borrowing costs as a central factor in the AI spending boom, raising questions about how long the market will continue to finance the trade.
With earnings growth expected to moderate and AI stocks trading at a substantial premium to the broader market, the sustainability of the rally increasingly hinges on companies delivering returns on their investments, alongside the availability and cost of financing.
Disclaimer: This article has been written by Veer Sharma, who is not a SEBI-registered Research Analyst or an Investment Adviser. Veer Sharma and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here.