After a few months of the war in Iran being the main daily driving factor for the stock market, we’re finally back to normal: worrying about an AI bubble.
Driving the news: A tech sell-off that began in the U.S. on Monday spread yesterday, dragging down stock markets across the globe. The most striking dip was in South Korea’s Kospi index — the world’s top-performing stock index this year — which tumbled 10%.
Big Tech companies in the U.S. like Alphabet, Nvidia, Oracle, and Tesla have now faced consecutive days of losses and SpaceX has fallen over 20% from its post-IPO high.
Zoom in: The bulk of Kospi’s losses stemmed from steep drops in SK’s two memory chip giants, Samsung and SK Hynix, which prior to Tuesday were up 175% and 331%, respectively. The rout was triggered by overvaluation fears, and compounded by other factors, like the growing number of retail investors borrowing money to buy stocks.
These speculators, who make up a large portion of Kospi’s investor base, were forced to sell to cover the loans when prices dipped. The growing number of leveraged ETFs tied to chipmakers also amplified things.
Why it matters: The systemic issue with Kospi’s rise this year is the same as with other indexes: it’s been driven entirely by AI-linked stocks. Opinions are split on whether this sell-off is a simple — even healthy — course correction for a chip sector that was running hot, or if it's yet another sign of an AI bubble waiting to burst. Either way, it’s clear volatile swings driven by AI jitters are the new norm and will continue for the foreseeable future—QH
