Once-hot AI trade leaves Korean stocks struggling for buyers

Korea’s once-hot AI trade refers to investment in Korean stocks linked to artificial-intelligence demand, especially Samsung Electronics and SK Hynix. Struggling for buyers means investors are no longer rushing into these shares, despite their earlier gains and connection to the global AI supply chain.

The shift is visible across the market. Turnover has fallen 70% from its late-May peak. Foreign funds have pulled $131 billion from Korean stocks this year, while local retail investors have reduced margin loans and brokerage deposits. Samsung and SK Hynix also make up more than half of the Kospi, so weaker demand for them affects the entire index.

The market has therefore become harder to attract. Investors question how long the memory-chip boom can last, and the summer’s leverage-driven selloff damaged confidence. Taiwan is benefiting because its technology ecosystem is broader, while some investors still see Korea’s lower prices and AI spending as buying opportunities.

The scale of Korea’s reversal is striking because the Kospi had been the world’s best-performing major equities benchmark during the first half. Since then, it has lost 22%, making it the worst-performing major benchmark in the second half, even as Taiwanese and US AI-heavy peers reached new highs.

Trading activity has weakened sharply. Turnover is down 70% from its peak in late May. Foreign funds have pulled $131 billion from Korean stocks this year, the largest withdrawal among major Asian markets, according to exchange data compiled by Bloomberg. Local investors are also stepping back.

The retreat appears in domestic market balances. Margin loans stand near 33 trillion won, down from 38.6 trillion won in June. Brokerage account balances have fallen to about 100 trillion won from almost 140 trillion won. These figures show less leverage and less cash waiting to be invested.

Samsung Electronics and SK Hynix have outsized influence because their combined market weight exceeds half of the Kospi. When two companies occupy such a large share of an index, their gains or losses can strongly move the benchmark and shape international views of Korea.

They are also the country’s main link to AI hardware demand. Both companies are memory-chip giants at the heart of the global AI supply chain. Their earlier share-price gains helped drive the Kospi’s rise, while doubts about memory demand have since made that concentration a liability.

This creates a narrow investment story. Korea’s AI fortunes depend heavily on whether these two companies can sustain profitability and demand. Their planned stock buybacks have also supported the market, but the combined 55 trillion won programs are nearing completion, removing an important source of buying pressure.

Memory chips are semiconductors that store data temporarily or for longer periods, allowing computers to retrieve information when needed. In established computing terms, they support the rapid movement of data between processors and storage. That makes them a basic building block for modern digital systems.

Artificial-intelligence systems process enormous datasets and repeatedly access model information. Fast, plentiful memory helps AI hardware keep those calculations supplied with data. Samsung Electronics and SK Hynix are therefore central to the AI hardware chain because they produce the memory chips used in advanced computing systems.

The investment link is especially important for Korea. The two companies together account for more than half of the Kospi and powered its rise earlier this year. If AI spending keeps lifting memory demand, Korean shares may recover. If demand weakens, the market’s heavy dependence on two memory producers becomes a major risk.

Investors look beyond one quarter’s profit when judging a cyclical industry. Memory chips can benefit from strong AI spending, but buyers worry that demand may slow or that the boom could prove temporary. That makes current earnings less reassuring if future prices, orders, or margins appear uncertain.

Samsung’s reaction showed this tension clearly. Its shares fell Thursday despite a nearly nine-fold surge in quarterly operating profit. The market treated the result as evidence of strong present performance, but not necessarily proof that the memory cycle can continue. Investors are questioning how durable demand will be.

The article also describes memory stocks as “value names,” meaning they look cheap using current earnings. However, retail investors and fast-money hedge funds tend to chase growth rather than low valuations. This helps explain why strong profits have not brought buyers back, especially while Taiwan offers a more upbeat earnings outlook.

Leveraged trading means investors use borrowed money to enlarge their market positions. It can accelerate gains, but it can also force rapid selling when prices fall. Korea’s summer selloff was described as leverage-driven, so the damage extended beyond share prices: it also weakened confidence in the market’s stability.

Margin loans outstanding peaked at 38.6 trillion won in June before settling around 33 trillion won over the following month. That decline indicates investors reduced borrowed exposure after the selloff. Brokerage account balances also fell to about 100 trillion won from almost 140 trillion won, leaving less domestic cash ready to buy shares.

The effect reached international investors. The article says the brutal summer decline has made some global funds hesitant to return, while capital has increasingly moved back toward US equities. Korea must now attract buyers without relying as heavily on leverage or temporary support from chipmaker buybacks.

Investors may choose Taiwan because its AI exposure is spread across a wider and deeper network of technology companies. That gives investors access to more parts of the hardware supply chain, rather than concentrating the trade mainly in two Korean memory-chip giants.

The performance gap is substantial. The Taiex has gained 70% this year and beat the Kospi by about 23 percentage points last quarter, the widest margin since the turn of the century. Taiwan’s gains are also broader: about 10% of its index members have at least doubled, compared with 4.7% for Kospi members.

This combination of breadth, strong spending plans from major technology companies, and a brighter earnings outlook is drawing tactical AI investment toward Taiwan. Korea still has potential if AI spending and memory profitability hold up, but Taiwan currently offers investors a more complete technology hardware ecosystem.