South Korea’s stock market suffered a sharp sell-off on Tuesday after Samsung Electronics‘ shares tumbled regardless of the company posting record earnings. The surprise fall in Samsung, one of the biggest companies in the Kospi index, pulled the market lower and added to growing worries that the AI-driven rally in chip stocks may have gone too far.
The benchmark Kospi index closed down 4.91% at 7,656.31. Samsung Electronics fell nearly 7% by the close after dropping more than 9% during trading, and fellow chipmaker SK Hynix lost 9.5%. The weakness spread across Asian markets, with the MSCI Asia Pacific Index falling 1.7%, indicating that investors continued to pull back from AI-related stocks.
Samsung beats expectations, but shares still tumble
Samsung reported a preliminary second-quarter operating profit of 89.4 trillion won (approximately US $58.4 billion), a 19-fold jump from a year ago. Revenue for the April-to-June period was 171 trillion won, up from 133.9 trillion won in the previous quarter.
Despite the strong results, investors sold the stock
“The stock had priced in a historic quarter for months, and once the numbers confirmed it was significant but not far beyond what the market had already expected, there wasn’t much to reward anyone stepping in,” said Zavier Wong, market analyst at eToro told CNBC. “It acts more like confirmation, and confirmation is what people sell into.”
Why Samsung dragged the Kospi lower
Samsung has a heavy weight in the Kospi index, so its sharp fall had an outsized impact on the market. At the same time, SK Hynix also came under pressure as investors reacted to its planned US listing, adding to the losses in South Korea’s technology sector.
The sell-off showed more than just Samsung’s earnings. Investors are becoming increasingly cautious about AI-related stocks after months of rapid gains. There are growing concerns that spending on AI chips and data centres may not continue at the same pace, even as chip prices remain high.
“It’s been ‘dragged down by concerns that AI infrastructure spending can’t keep growing at the pace that has been driving memory prices,’” Wong said.
Strong memory prices are raising new concerns
Samsung benefited from rising memory chip prices during the quarter. Citi Research found DRAM prices climbed 44% quarter over quarter, while NAND flash prices rose 53%.
The rise has been driven by strong AI demand, which has expanded beyond high-bandwidth memory chips into conventional chips used in smartphones, PCs and servers. Limited supply has also kept prices elevated, with customers increasingly signing longer-term supply contracts.
Still, some investors worry that such strong pricing may not be sustainable if AI infrastructure spending slows in the coming quarters.
“Our monthly checks into the memory prices of consumer products, mobile products, servers all indicated that prices are still rising,” said Tom Kang, research director at Counterpoint Technology Market Research to Reuters, explaining that the price spike will continue through at least this quarter.
Bonus costs and investment plans
Samsung’s results also included provisions for employee bonuses after the company reached a wage agreement with workers in May. Under the deal, semiconductor employee bonuses are now linked to operating profit.
Analysts estimate Samsung’s operating profit would have exceeded 100 trillion won without those bonus-related costs. However, investors remained focused on rising expenses and weaker profitability in Samsung’s foundry and logic chip businesses.
Kang also said Samsung’s long-term investment plans added to market concerns.
“A lot of negative news has been building up, so it looks like everyone wants a piece of that profit. The labor union wants it, and the Korean government wants it,” he told CNBC.
He also noted that Samsung’s plan to build new semiconductor plants in southern South Korea is weighing on investor sentiment because the region lacks the existing chipmaking infrastructure found elsewhere in the country.
AI rally comes under pressure
Tuesday’s sell-off also showed concerns about valuations across AI-related stocks. Chipmakers have rallied strongly over the past year as demand for AI hardware surged, but investors are now questioning whether those gains can continue.
Some analysts said Samsung’s strong earnings had already been factored into its share price after a steady rally over the past year.
“Samsung’s strong earnings were widely expected and had largely been priced in after its shares rallied ahead of the results,” Reuters quoted Albert Yong, a managing partner at Petra Capital Management. “Investors remain concerned about the sustainability of the AI boom and the risk of slower AI infrastructure spending by major U.S. technology firms,” Yong added.
Lee Min-hee, an analyst at BNK Investment & Securities, also pointed to higher chip prices as the main driver of Samsung’s earnings.
“Samsung posted better-than-expected earnings despite bonus-related provisions, as memory prices rose sharply,” Lee told Reuters
Samsung is expected to release its full earnings breakdown on July 30, which will provide investors with a clearer picture of how each business performed during the quarter. Until then, the market is likely to remain focused on whether the AI boom can continue supporting chipmakers after Tuesday’s sharp reality check.
Disclaimer: This article provides factual analysis only and is not, and should not be construed as, an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a registered financial advisor in the respective jurisdiction.