Investing.com– South Korea’s fell sharply on Friday, hit by deep losses in local chipmaking stocks amid growing concerns over bloated artificial intelligence-fueled valuations and outsized spending on the technology.
Export-heavy sectors were also spooked by the U.S. announcing a new 12.5% tariff on South Korea and a host of other countries.
The KOSPI slumped over 6% to an intraday low of 6,650.41 points, although it did recover to 6,751.49 points after Seoul said the U.S. had agreed to honor an earlier trade deal that would cap tariffs on the country to 15%.
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Chipmakers were the biggest weight on the KOSPI, with SK Hynix Inc () and Samsung Electronics Co Ltd () falling between 6% and 10%.
The sector tracked sharp overnight declines in U.S. tech stocks after quarterly reports from both and highlighted outsized spending on AI technology.
Alphabet– which is one of Wall Street’s biggest AI spenders– was a major point of concern, after the company logged its first ever negative quarterly free cash flow. Alphabet also raised its capital spending forecast for the year.
The report spurred concerns over outsized spending on AI, which now appears to be eating into the once lofty margins of big-tech companies. Investors were also seeking more justification for AI-linked spending, which has so far provided mixed returns.
South Korean firms have benefited greatly from outsized AI-linked spending, with Samsung and SK Hynix in particular having grown exponentially in the past year on AI-driven demand for memory.
But this valuation surge has also made the two increasingly sensitive to any shifts in sentiment, as have an increasing number of Korean leveraged exchange-traded funds tied to the two.
Adding to pressure on the KOSPI, Hyundai Motor () slid 8% after its second-quarter earnings underwhelmed. The prospect of higher U.S. trade tariffs, which were a major headwind for Hyundai in recent quarters, also weighed heavily on the stock.