AI Concerns Envelop Markets as Asian Stocks Plunge Further, South Korea Sees 'Irrational Selling'

Concerns over the overvaluation of artificial intelligence (AI) erupted Wednesday (29th), as investors increasingly questioned the potential returns on AI capital expenditures. Rising oil prices due to renewed Middle East tensions, coupled with pre-Federal Reserve (Fed) policy meeting anxiety, collectively fueled a market storm sweeping across the Asia-Pacific region.

Chipmakers, once the core drivers of this year’s AI surge, have now become the epicenter of the sell-off. South Korean semiconductor giant SK Hynix (SKHY-US), despite reporting a sixfold increase in quarterly operating profit, failed to meet market expectations. Its stock plunged as much as 20%, with a two-day cumulative drop reaching 30%. Investors expressed disappointment over the lack of shareholder return plans and insufficient details on long-term contracts.

Analysts note that in today’s AI market, merely showing 'strong' performance is no longer enough to satisfy investors. The market urgently demands proof that massive R&D spending is translating into tangible revenue.

Additionally, markets are wary of the 'circular funding' phenomenon, where a small number of companies invest in each other within a closed loop, making it difficult to assess genuine organic demand. With previous cash flow reports from Alphabet (GOOGL-US) and Tesla (TSLA-US) unsettling investors, the upcoming earnings from Microsoft (MSFT-US) and Meta (META-US) will be seen as critical tests for the sustainability of AI-driven transactions.

Among the regional rout, South Korea’s stock market suffered the most. The KOSPI index plunged as much as 13%, with a two-day cumulative decline of approximately 20%, triggering circuit breakers for the second consecutive trading day. The index is expected to record a historic loss of about 35% this month.

Notably, South Korea experienced what is being called 'irrational selling.' Retail investors, who previously tended to buy on dips, are now panicking and pulling out en masse, with net sell-offs reaching 1.9 trillion Korean won in a single midday session. Fund managers described the scale of the sell-off as 'incomprehensible,' reflecting a rapid shift in market sentiment from optimism to full surrender and fear.

Other regions were not spared. Taiwan’s stock market fell 5%, Japan’s Nikkei index dropped 2.6%, and the MSCI Asia Pacific (ex-Japan) index declined over 2.45%. Only Hong Kong’s Hang Seng Index rose 1.4%, showing a rare rebound.