As weakness in U.S. tech stocks spread, the KOSPI fell more than 2% intraday on the 3rd. Doubts persist in the market over whether tech companies can recoup the huge sums they are pouring into AI (artificial intelligence) infrastructure.
As of 11:23 a.m. today, the KOSPI stood at 5,717.36, down 141.72 points (2.42%) from the previous session. The index opened at 5,715.19, down 143.89 points (2.46%), then saw its losses widen to the 3% range and sank to the 5,600 level. Buying by other corporations later came in, bringing it back to the 5,700 level, and at one point it rose as high as the 5,730 level.
Securities industry officials pointed to concerns over AI investment funding that surfaced in New York trading overnight as the cause of today's decline. Lee Sang-yeon, a researcher at Shinyoung Securities, said, “Starting with Alphabet's poor third-quarter results, a string of AI-related negative news is hurting investor sentiment toward tech stocks,” adding, “We will need to watch AMD's third-quarter results on the 3rd (local time), the safe passage of the U.S. midterm elections, and then the Anthropic IPO (initial public offering) and Nvidia's earnings.”
In New York on the 2nd (local time), discussions on a U.S.-Iran deal to end the war picked up speed and international oil prices (WTI) plunged by 7%. Even so, worries over the profitability of AI investment grew and selling poured out mainly on tech stocks. The S&P 500 closed down 38.67 points (0.51%) at 7,541.40, and the Nasdaq Composite fell 272.68 points (1.07%) to 25,164.32. The Dow Jones Industrial Average, by contrast, closed up 213.67 points (0.41%) at 51,983.98.
Oracle's funding plan lit the fuse for the decline. Oracle said it would raise a total of $20 billion, $10 billion each through a common stock offering and a corporate bond issue, to secure funds for AI infrastructure investment. In the wake of this, Oracle's shares fell 8.8%, and semiconductor stocks such as Micron Technology (-5.80%), AMD (-7.52%), Intel (-8.83%) and Arm (-4.57%) also declined.
Yang Hyeon-gyeong, a researcher at iM Securities, analyzed, “Given that tech stocks weakened even though international oil prices and long-term U.S. interest rates fell on expectations for U.S.-Iran negotiations, the market appears to be focusing on recouping AI investment costs and funding burdens rather than on falling interest rates. Expectations for AI infrastructure demand are being maintained, but the market is reacting sensitively to the rising debt and equity dilution that accompany expanded investment.”
The U.S. midterm elections are cited as a possible catalyst for a market rebound. The hope is that, with macro variables such as the Middle East war, oil prices and interest rates piled on top of each other, at least the one layer of “political uncertainty” in the form of the election could be lifted. Lee Jun-young, a researcher at Eugene Investment & Securities, said, “In all six midterm elections held since 2000, the KOSPI rose an average of 4.7% in November, double the November average of 2.30%,” adding, “Since political and macro uncertainty has accumulated ahead of the election, there is room to expect easing once the event passes.”
SK hynix's share buyback is also cited as a factor that could support the floor of the index. On Oct. 28, SK hynix's board resolved to pay a third-quarter cash dividend of 14 trillion won and to buy back 20 trillion won worth of its own shares. Of this, 10 trillion won worth, the portion for shareholder returns, will be entirely canceled, while the remaining roughly 10 trillion won will be used for employee compensation and is not counted in the shareholder return total. The purchases began on Oct. 29 and will run through the end of next January.
According to the Korea Exchange, net purchases by other corporations, believed to be SK hynix volume, were only 21.3 billion won on Oct. 28 but grew to 334 billion won on the 29th, 282.7 billion won on the 30th and 473.8 billion won on the 2nd. On the 3rd as well, 122.3 billion won worth had been bought up until around 11:20 a.m.