The Kospi Composite Index pulled back sharply on Thursday, erasing some of the gains made earlier this week when investors cheered the strong SK Hynix earnings report. It dropped to 5,861 points, down modestly from this week’s high of 6,095 points. It remains 37% below its highest point this year.
Kospi Index drops as Google earnings raise AI jitters
To a large extent, this has been a good week for the Kospi Index as its biggest companies published strong financial results. SK Hynix, the second-biggest constituent, said that its revenue surged in the third quarter, pushing the management to announce a $45 billion capital return program. The company predicted that the memory boom will continue through 2029.
Meanwhile, Samsung Electronics, its biggest constituent, said that its revenue was 195.25 trillion won, which is equivalent to $124 billion. This revenue figure was slightly lower than what analysts were expecting.
Its operating profit of 107.44 trillion won, was also in line with expectations. As a result, it announced 30 trillion won in cash dividends for the third quarter and it plans to return another 55 trillion to 75 trillion. Samsung stock dropped by 5%.
The main reason behind the ongoing Kospi Index retreat is that Google’s results were weaker than expected. Its revenue came in at $111.2 billion, slightly lower than what analysts were expecting. Its advertising revenue was $82 billion, lower than the expected $83.6 billion. These results raised concerns about the huge sums of money that the company is using to invest in the AI industry.
AI bubble fears remain
The results came at a time when investors are concerned about the health of the artificial intelligence boom, with some analysts warning of the potential bursting of the bubble. Some of the most prominent analysts are Ken Griffin and Ray Dalio.
There are also concerns about the funding of the AI industry. In a statement this week, Elon Musk said that he expects many neocloud companies to go under because of the ongoing challenges in the financial market. Indeed, data shows that CoreWeave’s bond yields have soared to 15%.
A significant weakness in the AI bubble would have a major impact on Kospi because the two biggest companies account for about 50% on the index.
Still, on the positive side, other analysts believe that the AI boom has more room to run and that the two companies are highly undervalued.
Kospi Index technical analysis
Kospi Index chart | Source: TradingView
The daily chart shows that the Kospi Index bottomed at 5,272 points in July this year and then bounced back. It then dropped to this same level in October and then bounced back after the SK Hynix earnings.
Despite this rebound, the stock remains below the 50-day moving average, while the Supertrend is still in the red. These technicals suggest that the index will remain under pressure in the near term. It may drop towards the 5,500 level.
The alternative scenario is where it continues rising as investors target the 50-day moving average of 6,400 points.
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