China AI 'Kimi K3' shock hits domestic stocks; semiconductor hardware demand holds firm

On July 20, sell-side sidecars were triggered on both KOSPI and KOSDAQ. KOSPI fell about 3% to 6,592 points, while KOSDAQ dropped roughly 4.7% to 754 points. Intraday losses deepened further, with KOSPI sliding more than 4.3% to 6,525 points and KOSDAQ falling over 5% to the 750 level.

Foreign investor flows were not particularly negative. Foreigners bought a net 380 billion won in the KOSPI cash market and 260 billion won in futures, though they sold a net 150 billion won in KOSDAQ. The won-dollar exchange rate held relatively stable around 1,482 won.

Most large-cap KOSPI names weakened. Samsung Electronics fell about 4%, SK Hynix about 3%, and Samsung Electro-Mechanics about 1%, while LG Innotek plunged more than 9%. On KOSDAQ, gainers were scarce amid combined foreign and institutional selling. Shipping and fertilizer stocks rose on higher oil prices, while cosmetics and department store stocks largely stayed flat.

Bloomberg noted that Korea's KOSPI has emerged as a leading indicator of global investor sentiment. Where Korean markets once took cues from U.S. trading, the analysis suggested that with its heavy semiconductor exposure, Korea's market now often moves first, with the Nasdaq following — a reversal of the traditional lead-lag relationship. This dynamic was flagged as fueling a volatility feedback loop between retail selling in Korea and foreign investor reactions across the Pacific.

This week centers on earnings season. Tuesday brings Korea's July 1-20 export data and a presidential briefing on the Honam semiconductor cluster. In the U.S., GM, Northrop Grumman, AT&T, and GE Vernova report earnings, with GE Vernova's results, in particular, offering a read on data center investment trends given its power equipment business.

Wednesday brings Korea's June PPI, and early Thursday (Korea time) sees earnings from Google Alphabet and Tesla. The same day, Samsung Electronics holds its Unpacked event in London, unveiling new foldable phones and the Galaxy Watch9 series, with whether it uses Samsung's own Exynos foundry chip drawing particular attention.

Thursday also brings Korea's Q2 GDP release and a presidential public debate on real estate policy, along with a eurozone monetary policy meeting. Hyundai Motor, KB Financial, Samsung Energy Solutions, and Intel also report earnings Thursday. Friday brings earnings from Kia, Hyundai Mobis, Hyundai Rotem, and Samsung Heavy Industries, and also marks the expiration deadline for U.S. Trade Act Section 122 universal tariffs.

Google's earnings draw particular attention, as some attribute the market share decline of its latest Gemini model to insufficient computing power, making any additional investment plans it announces a key focus. For Intel, with strong backing from the U.S. administration and speculation about potential foundry contracts from Nvidia and Apple, pricing, yield, and big tech order wins were flagged as the key checkpoints.

SK Group Chairman Chey Tae-won, who also chairs the Korea Chamber of Commerce and Industry, said at a forum in Jeju that investors should "hold SK Hynix stock rather than buying and selling it." He argued that AI is still at the level of a four-year-old child, and memory demand will grow exponentially before it reaches maturity. While no one can predict where the stock will be next month, he suggested long-term holding is more conducive to wealth preservation.

He cited supply shortages as the basis for his confidence, noting that no fab can increase output before next year due to a lack of clean room capacity, even as demand remains abundant.

TSMC Chairman C.C. Wei also said in an earnings call that while there may be brief periods of softer demand between now and 2029-2030, the overall trend remains very strong. His remarks suggested that, independent of the traditional semiconductor cycle debate, the industry is witnessing the formation of an entirely new sector.

Brokerage reports struck a similar tone. SK Securities analyst Han Dong-hee noted that old rules no longer apply to the memory market, arguing that long-term agreements (LTAs) have shifted from suppressing prices to locking up supply itself. Meritz Securities analyst Kim Sun-woo said upward pressure on server DRAM spot and fixed prices, combined with rising sovereign AI demand, has tightened supply since mid-July, and forecast double-digit price increases in the third quarter.

Chinese AI startup Moonshot AI unveiled its large language model 'Kimi K3.' The model was assessed as matching the performance of OpenAI's and Anthropic's latest models, and drew attention for its cost efficiency — delivering roughly $15 worth of value at $3 per million input tokens. The company also announced plans to list on the Hong Kong stock exchange within six months.

The news revived memories of the 2025 DeepSeek shock, triggering debate over whether this marked a 'second DeepSeek moment.' Analysts noted a key distinction: while DeepSeek's shock centered on low-cost development, Kimi achieved performance comparable to the latest U.S. models through large-scale parameter scaling. Wall Street's interpretation was that this reaffirms the need to scale up models to achieve top performance, making GPU compute capacity and memory such as HBM even more critical.

On Friday, the Nasdaq Composite fell about 1.4%, with all Magnificent Seven stocks except Apple declining. Meta and Google dropped more than 2%, amplifying concerns over a chicken-game dynamic among LLM developers. In contrast, hardware-related stocks such as Western Digital and Seagate rose about 2% and 5%, respectively, bucking the broader decline. SK Hynix's ADR also gained roughly 1%.

Within a day of launch, Kimi's service faced surging demand and was unable to accept new users. This prompted some cautious analysis suggesting the model may not be as threatening as initially feared. The consensus that emerged was that neither China nor the U.S. can gain an edge in the AI race without securing hardware capacity, reinforcing the view that memory and data center capex investment will continue.

A 2x leveraged SK Hynix product listed in Hong Kong surged 17%, and SK Hynix's U.S.-listed ADR rose 1.6% in overnight trading. Even so, in the domestic market, Samsung Electronics and SK Hynix opened higher before quickly reversing lower, highlighting a disconnect between domestic investor panic and the broader global trend.

U.S. strikes on Iran continued over the weekend, marking the ninth consecutive day of attacks. Two U.S. service members were reported killed and one missing. Iran accused the U.S. of repeatedly violating negotiation terms and vowed a firm response, signaling intent to tighten its blockade of the Strait of Hormuz and cut off alternate shipping routes, raising broader risks to oil logistics.

Oil prices continued to climb. WTI traded around $83, while Brent crude passed $90 ($90.18). The dollar index stood near 100.7, and the U.S. 10-year Treasury yield rose to 4.57%, with the 2-year at 4.183%, both up from the previous session.

Within the U.S., the situation has grown irrational enough to spawn conspiracy theories that the crisis is being deliberately manufactured to delay the midterm elections. Despite President Trump's announced national address, the market's hoped-for reassuring message failed to materialize, with other topics dominating instead and uncertainty deepening as a result.

Last week's CPI and PPI releases had eased pressure on the upper bound for rates, but the continued oil price surge showed signs of reviving rate-hike arguments. Analysts cautioned, however, that Fed officials' remarks amid political pressure carry a strong element of personal opinion and should be interpreted with that in mind.

Hana Securities Research Center Chief Research Fellow Lee Kyung-soo appeared on today's Noon Salon segment. He cited three causes for today's sell-off. First, supply-demand flows: retail investors who piled in near the highs are now facing losses and continuing to sell in a panic aftershock, while foreign investors — who typically follow a mean-reversion pattern of selling on rallies and buying on dips — have recently been selling index ETFs while buying only individual leveraged ETFs, an unusual pattern that is amplifying intraday volatility.

Second, fundamentals: he explained that KOSPI and semiconductor stock prices react not to the absolute level of earnings but to the acceleration of year-over-year (YoY) growth rates, and that semiconductor earnings YoY growth is expected to decelerate from around 230% in Q2 to 180-190% in Q3, reflecting 'earnings peak-out' concerns. Third, seasonality: he noted that July is typically the month with the widest gap between earnings and stock prices, as institutions that have locked in first-half fund performance tend to sell off names they bought through June.

On identifying a market bottom, he said that analysis of past cases where KOSPI fell 25-30% from its peak — the 2002 IT bubble, the 2004 China shock, the 2008 global financial crisis, and the 2009 Dubai World default — showed that a genuine bottom formed roughly four months later on average. However, he added that since the current situation is not a systemic crisis like those past episodes, the path to a bottom could be shorter. He noted that a common signal at true bottoms was foreigners steadily absorbing retail selling, and that the recent shift to foreign net buying resembles this pattern.

On volatility driven by leveraged ETFs and derivatives such as options, he interpreted such derivative-driven distortions as potentially creating buy-the-dip opportunities to lower average cost basis, independent of actual earnings. Strategically, he proposed a seasonality-based, rules-driven approach, noting that July's earnings-factor weakness tends to be made up for between August and October — making it valid to buy earnings-strong semiconductor names such as Samsung Electronics, SK Hynix, Micron, Western Digital, AMD, and Nvidia at July lows and trade them through the second half.

Today's host was Park Si-dong. It was originally Lee Kwang-soo's scheduled vacation week, but when Lee tried to give up his time off, the production team forced him to take a day off anyway, and Park Si-dong co-hosted with Kwon Hae-na.

Park Si-dong interpreted the China AI shock through the lens of the DeepSeek moment pattern: initial shock, followed by reassessment as a genuine threat, and finally a reanalysis revealing inflated results built on hidden sunk costs — a cycle that eventually settled down. He noted a similar pattern is playing out again this time. Indeed, within a day of launch, Kimi K3 became unable to accept new users due to server overload, reaffirming that hardware capacity remains indispensable.

Park Si-dong voiced frustration that SK Hynix-related products are rallying in Hong Kong and U.S. markets while the domestic market alone is declining. He argued that domestic analysts understand better than anyone that Korea's semiconductor fundamentals are sound, yet systemic biases — such as panic selling driven by leveraged ETFs — are amplifying volatility. He said that if this psychological bias can be brought under control, stability could return quickly, and that it's not yet time to give up hope.

On the Iran-U.S. situation, he expressed concern that the atmosphere within the U.S. has grown irrational enough to spawn conspiracy theories about deliberately escalating the crisis to delay elections. He noted that the disappearance of predictability itself is the signal markets dislike most.