Kospi plunges 6.8% as bond yields rattle AI spending trade

Kospi fell as much as 6.8 percent on Wednesday as the 30-year Treasury yield touched 5.34 percent, its highest since 2007, rattling AI chip stocks. Samsung Electronics and SK Hynix each dropped more than 8 percent at one point, while a Bloomberg gauge of Asian semiconductor stocks fell about 3.2 percent.

"Rising bond yields increase the discount rate at which future growth is being priced at today," said Matthew Bartolini, global head of research strategists at State Street Investment Management. "If rates rise significantly, and stay there, it could impair longer-duration growth equities that have the majority of their high-growth forecasts further out on the horizon."

The selloff followed a 5 percent decline in the Philadelphia Semiconductor Index on Tuesday, with the Nasdaq Composite dropping 1.33 percent. Japan's Kioxia Holdings fell as much as 11 percent, while Taiwan Semiconductor Manufacturing Co. dropped nearly 2 percent. The 10-year Treasury yield climbed above 4.7 percent, approaching its highest level since early 2025.

The moves mark a reassessment of one of the market's biggest trades of the year — the AI-driven technology boom. With hyperscalers' bond issuance expected to reach $400 billion this year, up from $121 billion in 2025, investors are questioning whether the enormous capital spending on data centers and advanced chips can be sustained if borrowing costs remain elevated.

Bond yields hit the AI trade

The pressure on chip stocks follows a sharp rise in long-term U.S. Treasury yields. The 30-year yield touched 5.34 percent on Tuesday, its highest level since 2007, before easing back. The benchmark 10-year yield also climbed above 4.7 percent, while the 2-year yield held at 4.17 percent.

Higher yields make future corporate earnings less valuable in present terms, putting particular pressure on high-growth technology companies whose valuations depend heavily on expectations of strong earnings several years into the future. The effect is especially important for the AI sector because technology companies are committing vast sums to infrastructure.

Major technology companies have been spending heavily on data centers, servers, networking equipment and advanced semiconductors to expand their AI capabilities. At the same time, some of that investment is increasingly being financed through debt, making the sector more sensitive to higher interest rates.

A Reuters analysis published last week found that borrowing by AI "hyperscalers" has become a factor pushing up bond yields, as governments and companies compete for funding in debt markets. Alphabet, Amazon and Meta have issued almost $220 billion of bonds so far this year, more than double the $108 billion for all of 2025, LSEG data shows.

Big Tech spending under scrutiny

The concern for chip investors is no longer simply whether demand for AI chips will grow. The bigger question is whether the enormous investment being made today will generate sufficient returns. A Wall Street Journal analysis has estimated that nine major technology companies have about $3 trillion of off-balance-sheet commitments, much of it linked to AI infrastructure such as data-center leases and chips.

That has made investors increasingly sensitive to financing costs. When yields rise, companies face higher costs of borrowing and investors demand greater returns for holding riskier assets. That can pressure both technology valuations and the appetite for further capital expenditure.

South Korea has been especially vulnerable to the semiconductor selloff because chipmakers account for a substantial part of its equity market. Samsung Electronics and SK Hynix have benefited from strong demand for high-bandwidth memory and other advanced chips used in AI servers. Their shares have also been among the major beneficiaries of the global AI rally, making them vulnerable to profit-taking when sentiment changes.

Higher oil prices are adding another layer of uncertainty. Brent crude traded above $91 a barrel after rising for a fourth straight session, with West Texas Intermediate around $85 a barrel. The increase came as continuing uncertainty over the U.S.-Iran conflict raised concerns that inflation could remain elevated for longer.

Investors are looking for clues about the Federal Reserve's thinking on inflation, interest rates and economic growth in the minutes of its latest meeting. Fed funds futures traders believe the central bank could hike rates this year for the first time since 2023.

For now, South Korea's chipmakers are at the center of that repricing, as investors balance strong structural demand for AI hardware against a more expensive funding environment and growing scrutiny of the enormous sums being spent to build the AI economy.

This article is for informational purposes only and does not constitute investment advice.