'Jensen Huang is inflating a bubble': Foreign media warn of speculation frenzy in Korean markets

Foreign media are warning that South Korea — long seen as the biggest beneficiary of the AI semiconductor boom — may be the first country to suffer the consequences of the global AI investment frenzy. Analysts say the recent sharp drop in the Kospi, led by Samsung Electronics and SK Hynix, may not be a temporary correction but a warning sign for the broader AI investment cycle.

In its latest issue, The Economist ran a column titled "South Korea's stock-market boom is collapsing spectacularly," taking a close look at the Korean stock market and the AI chip industry.

The magazine said concerns that the memory chip cycle is approaching its peak have dragged down the share prices of Samsung Electronics and SK Hynix, and that the Korean market — which had been riding high on AI enthusiasm — is now undergoing a sharp correction.

"Worries that memory-chip prices are near their peak have pulled down share prices," The Economist said, adding that South Korea, which had been swept up in the stock market rally, "is learning the hard way that share prices can fall as well as rise." The magazine also said South Korea's market turmoil "may be no more than a harbinger of what is to come elsewhere in the world."

The Economist described South Korea as "a vast experiment combining the extremes of state capitalism and market speculation," saying that both government policy and the retail investor frenzy had simultaneously fueled market overheating.

The magazine said investment enthusiasm had grown excessive as expectations surrounding the AI chip boom collided with government policies to stimulate the stock market. It noted that after financial regulators allowed single-stock leveraged ETFs in April, investment demand surged — but as share prices subsequently fell sharply, forced selling and account liquidations followed, ultimately leading to a halt in new product launches.

The Economist also said the government had "tried to boost public morale by encouraging the stock market" following the emergency martial law crisis under the Yoon Suk Yeol administration, and that the government, which had been actively promoting the market until just weeks ago, now found itself having to apologize.

The magazine did, however, note that Korean companies remain the core beneficiaries of the AI chip market.

The Economist said the biggest winners from the expansion of AI data center investment are not American big tech companies but Samsung Electronics and SK Hynix, projecting that the two companies would each generate more than $200 billion in free cash flow next year.

The magazine also highlighted the bonus controversy surrounding the companies' massive earnings.

"Employees in the semiconductor divisions of both companies have agreed to receive 10 percent of operating profit as a bonus pool," The Economist said. "SK Hynix employees could receive up to $500,000 per person this year and as much as $800,000 next year." It added that Goldman Sachs employees' average total compensation last year was no more than $400,000 per person.

The magazine nonetheless questioned whether the current boom could last over the long term.

"An industry in which all the profits are concentrated in one corner of the supply chain cannot last," The Economist said, warning that if AI industry profits become excessively concentrated among a handful of companies, the balance of the entire supply chain could be destabilized.

The magazine singled out the technological catch-up by Chinese memory chipmakers and the durability of long-term supply contracts as key risk factors.

"There are growing concerns that chip customers may find ways to exit contracts with suppliers such as Samsung Electronics and SK Hynix," The Economist said. It also questioned how robust long-term supply contracts would prove if AI companies tried to walk away from data center lease agreements during an economic downturn.

The magazine also sounded a note of caution about the AI investment frenzy centered on Nvidia.

"Jensen Huang is pumping vast sums into the AI ecosystem and propping up the market, but like a central bank intervening in markets, he may actually be inflating a bubble," The Economist said. "The more he intervenes, the more anxious investors become — and the greater the shock when the bubble bursts."

Other foreign outlets have raised similar concerns.

The Financial Times reported July 30 that Korean investors had piled into the AI chip rally near its peak and were now facing a correction, citing a combination of factors: SK Hynix's earnings falling short of market expectations, technological advances by Chinese rivals, fears of a memory chip supply glut, and profit-taking ahead of the introduction of regulations on single-stock leveraged ETFs.

Bloomberg, also on July 30, described the recent Kospi decline as "the tip of a massive iceberg" and raised the possibility that anxiety over the AI investment boom could spread beyond South Korea to global financial markets. The outlet said questions about how long the AI-driven bull market can last have become a shared concern among investors worldwide.

Experts advise that the long-term growth potential of the AI industry should be viewed separately from short-term share price movements. While AI infrastructure investment and semiconductor demand are likely to expand over the medium to long term, analysts say volatility in related stocks could persist for now as supply glut concerns, corporate earnings, interest rates and shifts in investor sentiment all come into play — making diversified investment and risk management more important than concentrating heavily in any single area.