South Korea’s Kospi Drops Nearly 5% as Some AI Stocks Swoon, While Oil Keeps Climbing

South Korea’s benchmark index, the Kospi, tumbled nearly 5% on Monday, dragged down by some of the country’s most valuable tech stocks tied to artificial intelligence. The decline is noteworthy because Asian shares were mostly higher across the board.

Japan’s markets were closed for a holiday, but U.S. futures were mixed, suggesting that the impact of the downturn was localized to Korea and its AI-linked stocks. Meanwhile, oil prices continued their upward march, with Brent crude rising 2.6% to $90.40 per barrel as tensions between the U.S. and Iran escalated.

The recent developments in the Middle East have added fuel to the fire, analysts warn. A return to an environment of wide-scale attacks across the Persian Gulf is possible if the current escalation continues. Tanker traffic through the Strait of Hormuz has nearly ground to a halt, putting further pressure on oil supplies.

Korea’s two major AI-related stocks, Samsung Electronics and SK Hynix, booked significant losses. Samsung fell 4.4%, while SK Hynix dropped 3.3%. In Taiwan, another hotspot for AI-related stocks, the Taiex edged less than 0.1% lower as its leading chipmaker, TSMC, managed to climb 2%.

The global AI frenzy that has driven market gains in recent months may be turning sour. Pledges of massive spending on AI have fueled worries about a sector bubble, and many investors have opted to sell, locking in profits from recent big gains. The rollout of Moonshot AI’s Kimi K3 open-source model has also contributed to market jitters.

This new AI model is reminiscent of China’s “DeepSeek moment” in early 2025, when the world was introduced to a lower-cost, capable Chinese AI model that challenged rivals like Anthropic’s Claude and OpenAI’s GPT. Since then, powerful Chinese AI models have disrupted the global market.

The ongoing struggle between the U.S. and China to assert dominance in the AI sector is highlighted by this downturn. As tensions between the two superpowers continue to simmer, investors are becoming increasingly wary of the risks associated with investing in AI-related stocks.

Korea’s ability to sustain its position as a global leader in the tech sector is also being questioned. Can Korea’s economy withstand the correction that is likely to come? Only time will tell.

The lessons of history suggest that the AI sector may be following a similar trajectory to the dot-com bubble, which burst in 2000 after years of unsustainable growth. When the bubble bursts, investors will be left scrambling for cover.

In the short term, we can expect to see more volatility in the markets as investors adjust their positions. The impact of this downturn will be felt across the board, from chipmaking stocks like Nvidia and Broadcom to space exploration ventures like SpaceX. As tensions between the U.S. and Iran remain high, oil prices are likely to continue rising, putting further pressure on global supplies.

The AI sector is due for a reckoning. Whether it’s Korea’s Kospi or the global economy as a whole, the consequences of this correction will be far-reaching and potentially devastating.