Why did Seoul stocks fall despite positive AI hardware demand?

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Seoul Stocks Fell Amidst Anxiety Over AI Rally's Sustainability and Crowded Trades

Seoul's stock market experienced a significant downturn, with the Kospi index dropping over six percent, and chip manufacturer SK hynix seeing a decline of more than 11 percent. This sharp fall occurred despite robust demand for AI hardware, as evidenced by record profits announced by TSMC, a key player in the sector. The primary drivers behind Seoul's decline were growing investor anxiety that the artificial intelligence rally might be reaching its peak and concerns that the AI trade had become overly saturated, leading to stretched valuations.
Investor Concerns Over AI Rally Sustainability

A pervasive sense of anxiety has gripped the market regarding the longevity of the AI rally. While companies like TSMC reported substantial growth, with net profit soaring over 77 percent in the second quarter due to massive demand for AI hardware, traders are questioning the sustainability of current valuations. The substantial sums invested in the AI sector are now being scrutinised to see if they can truly justify the high market prices of related stocks.
The Impact of Crowded Trades and Stretched Valuations

Analysts have highlighted that the AI trade has become exceedingly crowded. The Philadelphia Semiconductor Index, for instance, had already surged approximately 83 percent this year, indicating that valuations were considerably stretched. This situation means that even strong earnings and healthy demand can lead to stock price corrections when a large number of investors already hold positions. The concern is not about the existence of AI infrastructure demand, but rather how much of this demand has already been priced into existing share values.
Excellent Results Failing to Prevent Stock Declines

The market dynamic has reached a point where exceptional financial results are no longer sufficient to guarantee stock price appreciation. When expectations for a sector are pushed to extreme levels, even positive outcomes can be perceived as falling short. This phenomenon was observed in Seoul, where the impressive performance of AI hardware demand and the positive outlook for the sector were overshadowed by broader market sentiment regarding the AI rally's potential exhaustion and the crowded nature of the investment trade.

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Why did Seoul stocks fall despite positive AI hardware demand?

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