Semiconductor Stocks Waver Despite Solidigm IPO Withdrawal… Shareholder Rights and the Sustainability of AI Investment Put to the Test

KOSPI and KOSDAQ Fall After U.S. Technology Stocks Slide… Intraday Losses Narrow The KOSPI fell as much as 1.99% intraday to the 5,423 level, while the KOSDAQ traded in the 738 range, down more than 3%. Advancing stocks were limited, while foreign investors recorded net sales of more than 1 trillion won on the main board and continued selling on the KOSDAQ. The won strengthened, with the won-dollar exchange rate falling by about 2 won and 20 jeon to 1,324 won and 30 jeon. Weakness in U.S. technology stocks the previous day drove the lower open. The Nasdaq fell 2.6%, while the Philadelphia Semiconductor Index dropped 6.7%, approaching its 200-day moving average. Selling was concentrated across semiconductor stocks: Nvidia fell about 4%, Micron 6%, SanDisk 8.5%, and Intel 8%, while SK hynix ADRs also declined by about 8%. In the latter part of the session, the KOSPI quickly pared its losses, narrowing its decline to 0.6–0.7%. Early concerns centered on a break below the 5,500 level and the possibility of further losses, but intraday trading also suggested that buying could emerge after a sharp drop. Investors were advised to prepare response plans for different levels of a decline rather than make definitive calls on the index’s direction. Declines in U.S. Technology Stocks and Indexes — Declines in the Nasdaq, the Philadelphia Semiconductor Index and major semiconductor stocks are compared. Sandisk recorded the steepest drop at 8.5%, while the Nasdaq had the smallest decline at 2.6%. SK hynix Halts Review of Solidigm IPO SK hynix disclosed that it was halting its review of a U.S. initial public offering (IPO) for Solidigm. The company said that, in light of recent capital-market conditions and share-price trends, it needed to reconsider whether proceeding with an IPO at this time would be the best choice for SK hynix and its existing shareholders. It added that it would continue pursuing long-term growth and efforts to enhance shareholder value. The plan to list Solidigm had raised concerns about damage to shareholder value as reports emerged that underwriters had been selected and related procedures were underway in the United States. The burden of a potential dual listing had been cited as one factor behind SK hynix shares falling more sharply than the semiconductor sector. The IPO halt has, for now, eased concerns that Solidigm’s growth could be separated from the interests of existing shareholders. Some interpreted the withdrawal not as a new earnings catalyst but as a step to prevent further harm to shareholder value. However, the extent to which Samsung Electronics and SK hynix set out the sustainability of future earnings and their shareholder-return policies at next week’s earnings announcements and investor briefings was seen as key to a recovery in investor sentiment. Samsung E&A Rises Against a Weak Market on Treasury-Share Cancellation Plan Samsung E&A rose more than 9% even as the index plunged. The company’s plan to cancel treasury shares worth about 780 billion won was cited as a factor that lifted investor sentiment. The announcement reflected expectations that buying shares in the market and canceling them could reduce the number of shares in circulation and increase the value of existing shareholders’ stakes. It was also noted that the short-selling ratio, which stood at about 13% before the earnings and treasury-share cancellation announcements, fell to around 2% afterward. The move was interpreted as an example of a short squeeze, in which investors betting on a decline buy back their positions as the share price rebounds, amplifying the rise. Foreign buying the previous day was also cited as supporting the share-price trend. Meta’s Spending Burden and Expectations for Tesla’s FSD and Optimus Meta rose in after-hours trading immediately following its earnings release, but its shares later plunged as concerns grew over its large-scale AI investment plans and financial burden. The company’s move to issue Class C shares and the increase in the scale of its future spending commitments from about $700 billion in July to $825 billion were cited as grounds for concerns about shareholder dilution and investment costs. It was also noted that the full amount of these commitments would not be spent in a single year. Tesla was described as having increased revenue while its operating profit deteriorated, and its shares, which rose immediately after the earnings release, later weakened. By contrast, the reported 67% increase in the use of Full Self-Driving (FSD) supported expectations that software and subscription services could become growth drivers alongside vehicle sales. FSD was described as a business capable of generating recurring revenue after shifting from a model tied to a person or vehicle to a subscription model. The timing and specific production scale of Optimus mass production remain uncertain, but there was also speculation that the company could disclose related plans at a separate event. The investment thesis included the expectation that Tesla’s growth trajectory could change if FSD and its robotics business become reality, even if its existing automotive business underperforms. AI Competition Shifts from Models to Platforms and Physical AI The AI model market was described as taking shape around two leading players, OpenAI and Anthropic, with Google potentially joining as a major competitor. Rather than betting on a winner among individual models, Microsoft was presented as pursuing a strategy of accommodating multiple services within existing software platforms such as Word and Excel. Meta, by contrast, is working to make its own services, such as Facebook and Instagram, gateways to the AI era. Competition in the AI industry is expanding beyond software models into physical AI, which combines automobiles, robotics, and telecommunications infrastructure. Tesla was cited as an example of a company that could bring autonomous vehicles, Optimus robots, and Starlink connectivity together in a single business ecosystem. If these businesses translate into actual products and revenue, the company’s profile could change from one assessed solely on vehicle sales. Nvidia CEO Jensen Huang was reported to have said, in effect, that memory shortages could persist through 2028, and to have commented on the possibility of using Chinese-made memory. Alongside interpretations that this pointed to a shortage of memory supply relative to demand, the long-term vision emphasized at GTC—with physical AI as its ultimate destination—was also cited as context for the semiconductor demand outlook. Market Response to AI Investment Shifts… Credit Risk and Interest Rates in Focus The pattern in which expectations of rising semiconductor demand lifted share prices whenever AI companies announced increased investment has shifted recently. As investment scales grow, the market has begun examining whether future revenue and cash flow can keep pace with spending. In a higher-interest-rate environment, borrowing costs and pressure on profitability have also increased. Investment expansion is now seen both as a signal of growth and as a financing risk. Meta’s five-year credit default swap (CDS) premium was reported to have surged to a record high. A CDS is similar to an insurance premium against default risk; a higher premium means the market views a company’s credit risk as greater. As concerns over Meta’s spending commitments and cash flow came to the fore, CDS premiums for other large technology companies also rose. Meanwhile, the U.S. 10-year Treasury yield fell below 5% intraday. It was explained that, as uncertainty becomes extreme, investors may seek relatively safe government bonds. Data were also cited showing that hedge funds’ short positions related to AI had approached their highest level in five years this month, and Goldman Sachs was reported to have warned of the possibility of a short squeeze due to the concentration of short positions on one side. WTI Touches $100 Amid U.S.-Iran Tensions WTI crude touched $100 a barrel. Middle East tensions came back into focus after President Trump suggested the possibility of reconsidering strikes on Iran and reports said hardliners in Iran would not give up nuclear weapons. President Trump also claimed that Iran was seeking to drive up oil prices ahead of the U.S. midterm elections. The upcoming Israeli general election, scheduled for October 27, and the U.S. midterm elections about a week later were also cited as sources of uncertainty. One interpretation was that Iran’s issue was gaining political prominence during election campaigns in both countries, prompting markets to remain alert to the possibility of escalating military tensions. The established link between higher oil prices and inflation and interest-rate pressures was also identified as a market concern. Analysts said Iran had used the Strait of Hormuz and the U.S. election as leverage in negotiations. Iran’s available means of applying pressure could change after the election, but some cautioned against drawing firm conclusions about what would happen next, given that military conflicts are harder to end than to start. Dual-Listing Controversy and the Role of Pension Funds in Market Stability It was reported that financial and supervisory authorities had indicated that the Solidigm IPO plan amounted to a dual listing. Analysts said that pushing ahead despite the authorities’ objections could have led not only to a backlash from shareholders but also to conflict with regulators. The halt to the IPO review was also seen as evidence that the authorities’ market discipline had taken effect. In response to a question about whether government policy funds or pension funds should absorb foreign investors’ selling, examples were cited of public funds in China and Taiwan cushioning market declines. In South Korea, the National Pension Service’s allocation to domestic equities is already close to a high level, which could limit its capacity to make additional purchases. One estimate put the domestic equity allocation limit at about 24% and the current allocation at about 20%, leaving roughly four percentage points of room. Longer-term institutional measures to direct funds into domestic capital markets were discussed, including converting retirement pensions into pooled funds, the National Growth Fund, and expanding Individual Savings Accounts (ISAs). These were proposed as medium- to long-term measures to support capital flows, distinct from an immediate approach in which pension funds prop up the index. Domestic Stock Allocation Limit and Current Allocation — The National Pension Service’s domestic stock allocation limit is compared with its current allocation. The limit, at about 24%, is higher than the current allocation of about 20%. Enhancing Shareholder Value and Principles for Navigating a Volatile Market One commentary described the Solidigm IPO halt as an example of shareholders being able to change a company’s decisions. In contrast with past practices in which shareholders found it difficult to speak up sufficiently or participate in decision-making at annual meetings, the interpretation was that shareholder protests and market opinion influenced the company’s plans this time. The withdrawal of Myungshin Industry’s dual-listing plan was also cited, alongside expectations that the market can push back against listings that pose significant risks to shareholder value. Another argument was that South Korea’s undervaluation stems not only from corporate profitability but also from how companies treat shareholders and inadequate protection of their rights. As more cases emerge in which shareholder-return policies, such as Samsung E&A’s treasury-share cancellation, affect share prices, companies could regain market confidence by explaining both the sustainability of their earnings and how they will preserve shareholder value. The commentary also added the hope that SK hynix’s IPO withdrawal had reduced unnecessary controversy ahead of next week’s earnings announcement and investor briefing. Investors deciding whether to sell a stock with large losses were advised not to base the decision solely on the loss already recorded, but to reset their criteria as if they were investing at the current price. Reducing holdings by 30% if the KOSPI falls below 5,300 was offered as an example, while sell plans at levels such as 5,100 and 5,000 should be tailored to each investor’s debt and equity exposure. The point was that investors who rely heavily on credit could reduce their holdings before the index reaches a particular level, while those investing long-term with surplus funds could wait for lower levels, with plans differentiated accordingly. Further advice was to avoid selling hastily during a rebound, instead raising stop-loss thresholds after a rise and acting according to predetermined rules only if the market falls further. For children’s accounts, investors should consider the nature of the holdings and the long investment horizon rather than immediate returns, distinguishing between stocks with weak long-term growth prospects and those, such as Samsung Electronics and semiconductor stocks, that are expected to have long-term holding potential. Alongside the view that predictions of a quick break below 5,000 if the KOSPI loses 5,500 were excessive, the commentary stressed that deciding in advance how to respond if 5,000 is actually breached matters more than predicting whether it will happen. Advice for one’s 2030 self included encouragement for having nurtured the seeds planted through investments and reflection on the choice to hold rather than sell hastily. Citing Warren Buffett’s words, “If you’re not willing to lose money, you can’t expect to make money,” the commentary also conveyed the message that investors should accept the possibility of losses while making decisions according to a plan. It concluded with the expectation that the more shareholders and investors speak up and participate in change, the faster companies and markets can improve.