KOSPI Plunges Over 6% as Chip Stocks Fall on AI Spending Fears, US Tariff News

South Korea’s benchmark KOSPI index plunged more than 6% on Friday, dragged down by a sharp sell-off in major technology stocks and concerns over new U.S. trade tariffs targeting the nation's exporters.

AI Spending Jitters Hit Tech Giants

The sell-off was led by semiconductor giants Samsung Electronics Co Ltd (KS:005930) and SK Hynix Inc (KS:000660), which saw their shares fall between 6% and 10%, according to Investing.com. The decline in Seoul followed a downturn in U.S. tech stocks, triggered by quarterly reports from Alphabet and Tesla that highlighted the immense costs associated with artificial intelligence development.

Investors were particularly concerned by Alphabet's report, which showed its first-ever negative quarterly free cash flow and a higher forecast for capital spending. This has fueled worries that the massive investment required for AI is beginning to erode profitability, prompting a re-evaluation of the sector's lofty valuations.

South Korean chipmakers, which have benefited substantially from AI-driven demand for high-performance memory over the past year, are now seen as particularly vulnerable to this shift in investor sentiment.

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US Tariffs Rattle Exporters

Adding to the market's anxiety, the United States announced a new 12.5% tariff on South Korea and several other countries. The news hit export-oriented companies hard, with Hyundai Motor (KS:005380) seeing its shares slide 8%, a move compounded by second-quarter earnings that disappointed investors.

The KOSPI touched an intraday low of 6,650.41 points. The index later pared some of its losses to close at 6,751.49 points after Seoul announced that the U.S. had agreed to honor a previous trade agreement, which would cap tariffs on the country at 15%.