The KOSPI index plunged 9% on the 13th, falling more than 25% from the record high (closing price 9,114.55 points) set on Jun. 22. Barring cases of major shocks that rocked the global economy, such as the COVID-19 pandemic, the U.S. credit rating downgrade, and the European debt crisis, the drop is unusual.
With no clear headwinds emerging in the global macroeconomy, the stock market's crash prompted the market to analyze the cause from multiple angles. While the escalation of geopolitical tensions between the United States and Iran and disruptions from single-stock leveraged exchange-traded funds (ETFs) are mentioned, experts said the fundamental reason rattling the market ultimately lies in overheating around artificial intelligence (AI) and the view that semiconductors have peaked.
The domestic stock rally led by Samsung Electronics and SK hynix had been based on expectations that the semiconductor super cycle would continue for an extended period. As AI demand grows, astronomical investment is being poured into building data centers, and the view gained traction that this would even eliminate the semiconductor industry's characteristic "business cycle," which alternates between booms and busts.
In the securities industry, optimism prevailed that the KOSPI index would rise to 10,000 points. Samsung Electronics(005930) posted operating profit nearing 10 trillion won in just one quarter, proving a "semiconductor super-boom."
But market sentiment shifted abruptly right after U.S. company Broadcom released its earnings last month.
Broadcom forecast next-quarter AI-related revenue would reach $16 billion, short of the market consensus of $17.2 billion. Right after Broadcom released its results, anxiety swept the market over whether the semiconductor boom had hit its peak. The Philadelphia Semiconductor Index in the United States plunged 10%.
Micron then released a surprise set of results, seemingly quelling the "peak-out" debate in semiconductors. But another development again heightened the caution of skeptical investors.
On the 1st, when Meta, the parent of Facebook and Instagram, said it would enter the cloud business by selling idle computing resources from its own data centers to external customers, global markets were thrown into turmoil. As Meta, a leading hyperscaler (operator of ultra-large data centers), was interpreted as acknowledging excess computing capacity, the AI overheating narrative resurfaced.
The AI overheating narrative led to the view that semiconductors had peaked. Cracks also began to appear in the analysis that AI investment would change the nature of the semiconductor industry, a classic "cyclical sector."
The Wall Street Journal (WSJ) on the 10th pointed out regarding SK hynix(000660), which listed depository receipts on the Nasdaq in the United States, that "the stock looks cheap on a price-to-earnings ratio (PER) basis, but considering the characteristics of the memory industry, it is hard to see it as simply undervalued."
Even if the blaze of growth in the AI industry is intense, a series of analyses said it is inevitable that supply shortages will ease and semiconductor companies' profitability will slow, putting the brakes on the semiconductor rally.
Yoo Seong-min, a Samsung Securities analyst, said, "The 'bad signal' emerging in this regard is that derating is underway for PERs in stock markets with high tech weightings, such as Korea and the United States," adding, "This is a typical phenomenon seen in the late stage of a bull market cycle."
Still, some advised there is no need to overreact to the unconfirmed view that semiconductors have peaked. While that view triggered a sell-off, the fundamentals that had driven stock gains have not been damaged.
For now, macro indicators surrounding the semiconductor cycle remain solid. Korea's exports from the 1st to the 10th of this month hit a record $29.8 billion, up 54% from a year earlier, with semiconductor exports up 193% to $11.2 billion, accounting for 40% of total exports.
Kim Seok-hwan, a Mirae Asset Securities analyst, said, "There is not enough basis to interpret the current stock decline as a sharp contraction in semiconductor demand," and added, "We should respond after checking the preliminary second-quarter results expected from SK hynix on the 29th and updates on future capital expenditure (CapEx) outlooks in hyperscalers' earnings releases."