Market Turmoil: Tech Stocks Plunge Amid AI Algorithm Shock and Geopolitical Tensions
South Korea’s benchmark KOSPI index experienced a significant downturn on the 27th, closing at 5,438.87, a 0.40% decrease from the previous trading day. The market opened sharply lower, shedding 2.93%, and at one point during the session, plunged over 4% to the 5,200 level. However, a late-session recovery managed to mitigate some of the initial losses. In contrast, the KOSDAQ managed to eke out a gain, closing up 0.43% at 1,141.51.
The primary driver behind the KOSPI’s initial steep decline has been attributed to the fallout from Google’s unveiling of its ‘TurboQuant’ AI algorithm. This advanced technology, which significantly compresses data, has sparked concerns about the future demand for memory chips, directly impacting major players like Samsung Electronics and SK Hynix, which saw their stock prices tumble for a second consecutive day. Adding to the market’s unease was a surge in oil prices, fueled by fading hopes for a swift resolution to the Iran conflict. In the Seoul foreign exchange market, the won weakened against the dollar, opening at 1,508.6 won per dollar, an increase of 1.6 won from the previous day.
Investors Rally to Cushion KOSPI’s Fall
Despite the broad market weakness, individual investors demonstrated robust buying pressure, playing a crucial role in curbing the KOSPI’s decline. Data from the Korea Exchange indicated that individual investors recorded a net purchase of 2.7127 trillion Korean won by 3:30 p.m. on the day. Institutional investors also contributed positively, with a net purchase of 777.6 billion Korean won. Foreign investors, however, were net sellers, offloading 3.8881 trillion Korean won worth of stocks.
The ‘TurboQuant’ Effect: Semiconductor Giants Face Headwinds
The sharp opening drop in the KOSPI was largely a reaction to the significant losses experienced by Samsung Electronics and SK Hynix. Samsung Electronics closed down 0.22% at 179,700 Korean won, while SK Hynix saw a 1.18% dip, ending the day at 922,000 Korean won. These declines followed substantial drops of 4.71% and 6.23%, respectively, on the preceding day, marking a concerning two-day losing streak for these tech titans.
The root cause of this weakness is the market’s interpretation of Google’s TurboQuant. This next-generation AI algorithm is designed to be highly memory-efficient, capable of compressing data to one-sixth of its original size. Its primary innovation lies in addressing memory bottlenecks encountered by ‘vector search engines,’ which are fundamental to the operation of large language models (LLMs). The implication is that achieving the same performance level might require significantly less memory, potentially disrupting the long-held assumption that increased AI adoption directly translates to increased memory demand. This has understandably generated anxiety among investors, leading to a sentiment that memory demand could decelerate.
Han Ji-young, a researcher at Kiwoom Securities, explained the market’s apprehension: “The negative interpretation that TurboQuant allows longer conversations with the same memory, meaning less memory is needed than expected, has dampened investor sentiment.”
Geopolitical Instability Fuels Oil Surge and Market Uncertainty
Adding to the market’s woes were rising geopolitical tensions, particularly concerning Iran. Late last night, U.S. President Donald Trump issued a stern warning to Iran, stating, “It’s better to get serious before it’s too late.” This heightened pressure, coupled with signs of stalled diplomatic efforts, contributed to a sharp increase in oil prices. Brent crude futures, the international benchmark, surged 5.8% to close at $108.01 per barrel, while West Texas Intermediate crude rose 4.2% to $94.48 per barrel.
The ripple effect of these developments was felt across global markets. U.S. stock markets broadly turned bearish. The S&P 500 declined by 1.74%, the Dow Jones fell 1.01%, and the Nasdaq experienced a more significant drop of 2.38%. Semiconductor stocks, already under pressure from the TurboQuant news, saw further steep declines. NVIDIA plummeted 4.15%, while SanDisk, Micron, and AMD registered losses of 11.02%, 6.98%, and 7.46%, respectively. Analysts pointed to the dual impact of increased investment risks in the semiconductor sector following the TurboQuant announcement and the profit-taking triggered by the geopolitical uncertainty surrounding Iran.
Doug Beath, a global equity strategist at Wells Fargo Investments, commented on the complex geopolitical landscape: “As the ping-pong game unfolds at a faster pace, it’s unclear who President Trump’s negotiation counterpart is. Conflicting signals abound, and uncertainty is driving the current situation.”
Securities Firms Cautious, Acknowledge “Excessive Fear”
Within the securities industry, some analysts believe that the current sharp market decline may be an overreaction, fueled by an “excessive spread of fear” stemming from the confluence of adverse factors. Lee Sung-hoon, a researcher at Kiwoom Securities, noted, “The domestic stock market opened lower in the early session, reflecting adjustments in U.S. markets amid Iran war noise and the plunge in U.S. semiconductor stocks (Philadelphia Semiconductor Index -4.8%).” He added that considering the extension of Trump’s deadline for attacking Iran announced after the market closed and the pre-emptive reflection of price adjustments in domestic semiconductor stocks the previous day, the market is expected to gradually highlight low-price appeal, narrowing the decline as the session progresses.
Furthermore, there’s an emerging perspective that TurboQuant could, paradoxically, become a catalyst for increased memory demand in the long run. Lee Jong-wook, a researcher at Samsung Securities, suggested, “Factors reducing AI memory demand will primarily emerge when AI functions become entrenched. As long as AI companies compete on performance rather than cost, cost optimization will not affect semiconductor demand.” This view posits that while TurboQuant offers efficiency gains, the relentless pursuit of enhanced AI performance by companies will continue to drive the need for robust memory solutions.
