Kospi plunges over 6% on AI profitability fears, inflation worries

The Kospi plunged more than 6 percent in early trading Thursday as concerns over US inflation collided with renewed doubts about the profitability of AI infrastructure investment.

Large-cap semiconductor stocks including Samsung Electronics and SK hynix led the decline, while foreign investors extended their net selling streak to eight consecutive sessions. As the Kospi was pushed down to the 5,600 level, sell-side circuit breakers were triggered on both the Kospi and Kosdaq markets.

According to Korea Exchange, the Kospi opened Thursday down 335.80 points, or 5.59 percent, at 5,673.01 and at one point slid as low as 5,615.72, a drop of 6.54 percent from the previous close.

The sharp early selloff prompted sell-side circuit breakers to be activated on both the Kospi and Kosdaq markets in succession. It was the first time both markets triggered sell-side circuit breakers on the same day in about 11 weeks, since July 29.

Foreign investors remained net sellers on the Kospi market for an eighth straight session Thursday, offloading a net 943.2 billion won ($705 million). Retail investors and institutional investors were net buyers of 11.3 billion won and 907.5 billion won, respectively.

The domestic selloff appeared to track weakness on Wall Street, where all three major US indexes fell overnight. The Dow Jones Industrial Average and the S&P 500 declined 0.09 percent and 1.11 percent, respectively, while the tech-heavy Nasdaq Composite dropped 1.88 percent.

The moves came as stronger-than-expected US consumer price index data for September stoked inflation fears, while concerns resurfaced that big tech companies' aggressive spending on AI infrastructure may not generate sufficient returns relative to the scale of investment.

The US Labor Department reported that September CPI rose 3.7 percent year-on-year, exceeding market forecasts. Gasoline prices surged 9.1 percent from the previous month, but price pressures were broad-based, with non-energy items also rising across the board. The yield on the 10-year US Treasury briefly spiked to 5.329 percent immediately after the CPI release.

Even as the macroeconomic backdrop deteriorates with rising rates and inflation, questions about AI's profitability remain unanswered. Research firm Gartner projected that AI infrastructure investment will reach around $1 trillion in 2026, with an additional $6 trillion expected between 2027 and 2030. To cover the associated capital and financing costs and achieve a return on invested capital, Gartner estimated that $8.5 trillion in revenue would be needed by 2030 — yet actual data center-related revenue is projected to reach no more than $3.6 trillion.

Against that backdrop, major US technology stocks fell, with Microsoft down 1.80 percent, Meta off 3.27 percent and Amazon declining 1.74 percent. Leading semiconductor stocks also slid in tandem.

Nvidia and Broadcom dropped 3.16 percent and 3.10 percent, respectively, while Micron fell 4.08 percent, SanDisk 5.33 percent, Western Digital 4.36 percent and Seagate 4.50 percent. SK hynix's American depositary receipts closed down 6.06 percent at $147.55, falling below the $149 IPO price from its Nasdaq listing in July.

The chill from Wall Street sent domestic semiconductor heavyweights tumbling 6 to 9 percent in early trade. The losses extended a seven-session losing streak, compounded by a combination of headwinds: the rapid advance and capacity expansion of China's CXMT, concerns about financing bottlenecks for AI infrastructure investment, and persistent weakness in US technology and semiconductor stocks. Samsung Electronics and SK hynix opened lower by 6.68 percent and 8.10 percent, respectively, and continued to fall in early trading.

The Kosdaq also slid sharply, opening down 39.43 points, or 4.79 percent, at 784.45, surrendering the 800 level at the open before extending its losses further. The index at one point fell as low as 766.94, a decline of 6.91 percent. On the Kosdaq, retail investors were net sellers of 60.7 billion won, while foreign investors and institutional investors were net buyers of 47.5 billion won and 15.1 billion won, respectively.