Global banks back Korean chipmakers even as AI bubble fears drive foreign selloff

Warnings about an AI bubble are growing louder, but major global investment banks are holding firm on their bullish outlook for the Korean stock market.

While doubts about the profitability of the AI industry continue to weigh on equities, these banks argue that actual demand for AI infrastructure and earnings growth among chipmakers remain solid. They lean toward the view that the recent market correction reflects a short-term pullback driven by weakened investor sentiment and supply-demand imbalances, rather than any deterioration in underlying fundamentals.

JPMorgan and Nomura Securities have each recently published reports with positive outlooks on the Korean market, according to the financial investment industry Wednesday. Both banks share the view that a semiconductor supply shortage driven by expanding AI investment will persist at least through 2028, and that despite near-term share price declines, the broader trend of AI leading the market remains intact.

In its Asia thematic strategy report titled "Why AI remains foremost," JPMorgan maintained an "overweight" rating on the Korean and Taiwanese markets, forecasting that AI-related stocks will continue to drive gains across Asian equities next year as they did this year.

JPMorgan estimated that AI-related stocks account for more than 50 percent of Asian market indexes and will contribute roughly 70 percent of total earnings growth in 2027.

The bank highlighted Korea and Taiwan as central to the global AI hardware supply chain — Korea for memory chips and HBM, and Taiwan for advanced logic semiconductors and packaging.

A sustained AI hardware supply shortage through at least 2028 underpins the positive outlook, as chipmakers stand to benefit from both rising output and stronger pricing power. JPMorgan projected that net profit across Asia's AI hardware ecosystem will surpass $1 trillion by 2028.

Nomura Securities also named Samsung Electronics and SK hynix as stocks to watch in its global memory report, assigning a "buy" rating to both. It set price targets of 670,000 won ($505) for Samsung Electronics and 4.7 million won for SK hynix — well above their respective closing prices of 211,500 won and 1.22 million won on Tuesday.

Nomura likewise forecast continued growth in memory demand driven by data center expansion. The global new data center capacity it tracks is expected to rise from 22.3 GW this year to 31.5 GW next year. The bank said memory demand will grow faster than supply even as some AI companies see slowing revenue growth and certain data center operators face financing pressures.

Nomura also said the risk that funding difficulties at individual AI companies could trigger a broader pullback in industry investment is limited, since existing data centers and equipment can be taken over by other operators even if the original developer fails to secure financing. The bank also dismissed as excessive market concerns that advances by China's CXMT could erode the competitiveness of Korean chipmakers.

Despite this sustained optimism from the securities industry at home and abroad, investor sentiment in the actual market has been slow to recover.

Foreign investor selling has been a key indicator. On Tuesday, foreign investors recorded net selling of about 540 billion won ($407 million) on the Kospi market. With institutional investors offloading an additional roughly 1 trillion won in shares, the Kospi closed down 3.73 percent from the previous session at 5,552.74. Samsung Electronics and SK hynix fell 2.98 percent and 4.23 percent, respectively.

Lingering doubts about whether massive capital expenditure by AI companies will translate into actual profits continue to weigh on sentiment. The concern is that if the pace of monetization for AI models and services fails to keep up with data center investment, semiconductor demand could slow faster than expected.

Geopolitical headwinds compounded the pressure. Large-scale protests and unrest spread in France, while Yemen's Iran-aligned Houthi rebels claimed attacks on Saudi Arabian energy facilities and airports. Political and fiscal instability in Europe, combined with fears of energy supply disruptions in the Middle East, are pushing up international oil prices and government bond yields, further dampening appetite for risk assets.

Ultimately, market attention is focused on how well the long-term growth outlook for the AI industry will be backed by actual corporate earnings.

JPMorgan flagged slower monetization of AI models and applications, as well as power supply constraints at data centers, as key risk factors. Nomura added a caveat that if data center investment plans are repeatedly scaled back, or even fully funded projects face delays, it would need to revisit its memory demand forecasts.