Overview
South Korea's KOSPI fell sharply on Friday, dragged down primarily by large losses in domestic semiconductor stocks as investors reacted to concerns over elevated valuations tied to artificial intelligence-driven investment and the scale of spending earmarked for the technology. Export-sensitive sectors were also rattled after the United States announced a new 12.5% tariff on South Korea and several other countries.
Intraday moves and trade clarification
The KOSPI slumped by more than 6% to an intraday low of 6,650.41 points before recovering to 6,751.49 points after Seoul said the U.S. had agreed to honor an earlier trade deal that would cap tariffs on the country at 15%.
Chip sector pressure
Semiconductor names were the largest drag on the benchmark. SK Hynix Inc and Samsung Electronics Co Ltd both fell, with declines in the range of roughly 6% to 10%. The moves followed sharp overnight losses among U.S. technology companies after quarterly reports from Alphabet and Tesla highlighted outsized spending on AI technology.
Alphabet - identified in market commentary as one of Wall Street's largest AI spenders - reported its first-ever negative quarterly free cash flow and increased its capital spending outlook for the year. That update intensified concerns that heavy AI investment is eroding previously high margins at major technology firms and has fueled investor demands for clearer returns on AI-linked expenditures.
South Korean companies have benefited markedly from AI-related demand, with Samsung and SK Hynix in particular experiencing exponential growth over the past year driven by AI demand for memory. That rapid valuation appreciation has also increased sensitivity to shifts in investor sentiment, a sensitivity echoed in Korea-focused leveraged exchange-traded funds that are tied to those stocks.
Wider market effects
Beyond semiconductors, Hyundai Motor slid about 8% after its second-quarter earnings failed to meet expectations. The possibility of higher U.S. trade tariffs - a meaningful headwind for Hyundai in recent quarters - compounded selling pressure on the automaker's shares.
Investor focus
Overall, market participants appeared to be weighing the dual risks of escalating AI-related capital deployment that is compressing margins at large tech firms and renewed trade-policy uncertainty stemming from tariff announcements. The sell-off underscored how concentrated gains tied to AI demand can leave industry leaders and related investment vehicles vulnerable to rapid sentiment shifts.