Seoul searching: Does the new Kospi bull market hail the next leg in the AI trade?

The Kospi has recovered from its historic rout to re-enter a technical bull market. It's been a wild ride so far and investors brave enough to hold on have still had an excellent year-to-date despite all the volatility.

Korean stocks have become a proxy for the AI trade, with the benchmark Kospi index relying heavily on the performance of two memory chip giants – SK Hynix and Samsung Electronics. Their underperformance in July was part of a wider shakedown across the semiconductor space.

The question is whether following the shake-out in July we can say that the recovery in the Korean market sets the stall for another leg higher for AI stocks? The Kospi index had doubled in the first half of the year before it soured by 22% in July. Thursday's rally of more than 3.5% took the gain from the 30 July low to around 23%.ETFs tracking Korean shares have rallied too with the iShares MSCI Korea UCITS ETF up about 24% in that period.

Earnings momentum from the US and elsewhere points to renewed demand for technology hardware stocks, particularly heavyweight memory-chipmakers. The recovery seems to be down to fresh optimism over AI spending. Demand for AI computing and memory shortages that could last through to 2030 should support chip pricing and margins.

Goldman recently reiterated its Overweight rating on Korean equities and its 12-month Kospi target of 12,000, implying about 80% from current levels. Before this Morgan Stanley went to Overweight from Equal-weight, noting how the “leverage washout” had created a better entry point.

Beyond Korea, we can see emerging signs of relief in the AI space after the travails of July - Situational Awareness liquidation, SpaceX indigestion, Fed rate hike fears etc.

Results from CoreWeave, Super Micro Computer, Nebius, Lumentum and others this week point to strong AI-related infrastructure spending, repinning confidence. Nvidia's pooling of $500bn in AI-related investment capital has been a factor, too. This should broaden demand for chips and other AI infrastructure, shifting reliance away from the  hyperscalers. Cooling US inflation has also pushed out rate hike bets, removing an overhang for growth stocks, albeit yields remain persistently high. And Anthropic is reportedly eyeing a $2tn valuation with an IPO later this year. If that goes off then Korea just might be the canary in the chip mine.

Going further: is the AI trade broadening again?

Korea’s resurgence matters because it fits into a broader question facing markets. Is there a lot further to run in the AI trade, or did July’s wobble signal ill-health and unease. 

From a fundamental perspective we can run through the usual laundry list: first phase of the AI trade was dominated by a handful of winners. Nvidia supplied the GPUs. TSMC manufactured many of the most advanced chips. The hyperscalers — Microsoft, Alphabet, Amazon and Meta — spent billions building the infrastructure.

But as the AI investment cycle matures, the investment opportunity potentially spreads further through the supply chain. Korea sits unusually close to the centre of this physical AI ecosystem by virtue of SK Hynix and Samsung. 

From a technical perspective, the clearing out of positions and leverage unwind in July probably has helped clear the way ahead for bulls to re-enter. Market positioning is now "much cleaner," the GS analysts wrote.

Four ways investors can approach the theme

There isn’t a single AI investment. Different funds provide exposure to very different parts of the opportunity.

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Korea could be telling us something

Investors shouldn’t assume that because Korea has entered a technical bull market Nvidia or the wider AI complex must automatically follow.

Samsung and SK Hynix sit upstream in one of the world’s most important technology supply chains. Strong orders, exports, pricing and earnings there provide evidence about what is actually happening underneath the AI investment narrative.

The rebound also comes after a brutal correction, rather than following a period of uninterrupted enthusiasm. That makes Korea worth keeping on the AI dashboard. If the memory cycle remains strong, hyperscalers continue spending and semiconductor earnings continue rising, the next stage of the AI trade may start to take shape and could increasingly be a global hardware, infrastructure and supply-chain story. South Korea may be one of the clearest places to watch it unfold.