KOSPI plunges more than 5% on AI profitability concerns; disappointment over Samsung Electronics’ shareholder returns adds pressure

The KOSPI fell more than 5% intraday to the 5,620 level, while the KOSDAQ dropped about 4.6% to the 718 level, below 720. A sell-sidecar was triggered early in the session. Near the end of the broadcast, the KOSPI was cited at 5,660, reflecting differences in the figures by time of day.

Foreign investors sold both cash equities and futures, with more than 1 trillion won in selling recorded on the Korea Exchange. Foreign and institutional investors also continued selling on the KOSDAQ. The won-dollar exchange rate moved around 1,338 won with little change.

The immediate drivers of the sharp decline included a steep drop in Google shares and results and guidance from Amazon and Intel. Expectations that earnings from AI-related companies would lift market sentiment weakened, while investors increasingly favored U.S. Treasuries over riskier assets.

Key events next week include the U.S. midterm elections, the jobs report and the ISM Services PMI. With much of the earnings season nearing completion, interest rates, economic data and election results were identified as factors that could determine the next direction of volatility.

Samsung Electronics set total cash dividends for the third quarter at 30 trillion won and said the dividend would be 4,601 won per share for both common and preferred shares. It put total shareholder returns for 2026 at 90 trillion–110 trillion won, explaining that the remaining 55 trillion–75 trillion won, after excluding the 35 trillion won already confirmed for distribution, would include cash dividends and share buybacks and cancellations.

Samsung Electronics said it was aware of market interest in the price gap between its common and preferred shares, and that it would actively consider the proportion of preferred shares in any buybacks and cancellations, taking market conditions into account. It said its next shareholder-return policy would be announced at a board meeting at the end of January 2027.

Reuters criticized Samsung Electronics for a cautious and opaque approach to shareholder returns, saying it was fueling shareholder anxiety. The contrast was also noted between Samsung Electronics reiterating its existing return targets and SK Hynix saying it would remove its existing cap of returning half of free cash flow.

IBK Investment & Securities maintained its Buy rating, saying earnings were strong but shareholder returns disappointing, and set a target price of 350,000 won. Meritz Securities expected a shareholder-return policy addressing the company’s undervaluation to take shape in 2027. While domestic brokerage reports generally leaned toward waiting for the January announcement, Reuters strongly criticized the company for failing to meet market expectations.

Alphabet fell about 12% in U.S. trading after its free cash flow came in below expectations. Its market capitalization was said to have fallen by about $500 billion in a single day. The stock was pressured by concerns that the cash-generating power of its existing businesses, including search and advertising, could weaken, rather than by the growth of its AI business itself.

Amazon’s revenue and earnings per share fell short of market expectations. Earnings per share were $1.89, and its operating margin was about 13%. AWS revenue was $46 billion, above expectations and up 39% from a year earlier, but advertising revenue of $19.6 billion fell short of the $20.8 billion forecast.

Amazon forecast next-quarter revenue of $240 billion–$247 billion, broadly in line with market expectations. It projected operating income of $28.5 billion–$33.5 billion, compared with market expectations of $33.1 billion. With no clear upside signal from its core business and guidance failing to materially exceed expectations, it was difficult to restore investor sentiment.

Amazon said the payback period for AI investment was shortening and the break-even point was moving closer, while adding that it would continue investing to maintain its leadership. However, market concerns came to the fore that cash flow from its existing businesses could weaken as the company continued to expand investment.

Intel reported revenue of $16.5 billion, in line with market expectations, while adjusted earnings per share of $0.52 and an adjusted gross margin of 44.1% beat forecasts. However, its next-quarter revenue guidance of $15 billion–$16 billion was below the market estimate of $17.1 billion.

Intel forecast adjusted earnings per share of $0.25 for the next quarter, below expectations of $0.43. Its adjusted gross margin forecast of 38% also fell short of the market estimate of 42.4%. The weak outlook drew more attention than the results themselves, sending the shares down more than 20%.

The company said the reallocation of memory supply toward AI was putting pressure on consumer memory prices and PC demand. It forecast that PC shipments across the overall market would decline 12% in fiscal 2026 and could fall a further 10% in 2027. Disruptions at its semiconductor plant in Israel were also cited as a headwind to earnings.

Intel plans capital expenditure of about $20 billion in 2026, adding to its investment burden. Management said a return to positive free cash flow in 2027 was unlikely. The prospect of AI investment expansion and a contraction in the PC market simultaneously weighing on cash flow heightened investor concerns.

The AI race is changing customer interfaces and revenue structures in existing businesses, not just driving greater investment in data centers and semiconductors. If users turn to generative AI instead of search engines, search ad exposure and revenue could fall. If AI agents compare products and make purchases on users’ behalf, traffic and sales at existing online retail platforms could also be affected.

Google has relied on cash generated by search and YouTube advertising to fund AI investment, but that foundation could weaken if users shift to Gemini, ChatGPT, Claude and other services. Even as the number of AI service users grows, it remains uncertain whether Google can monetize that growth as quickly as it does its existing advertising business.

Amazon, too, could lose its position as consumers’ first stop if AI agents compare multiple sellers and find cheaper products. Amazon’s move to restrict external access to its AI services was interpreted as an effort to defend its existing retail business. The company is seen as being in a transition period in which delaying AI investment could weaken its competitiveness, while increasing investment would add to its cash burden.

Rising demand for server memory from AI data-center investment is reshaping supply and could put upward pressure on prices and weigh on demand in the consumer memory and PC markets. Markets are also scrutinizing more closely whether AI investment is translating into actual returns. Investors are entering a phase in which they need to assess profitability by data center, customer numbers, investment costs and financing capacity.

U.S. Treasury yields fell in Asian trading to around 4.9%, with an intraday decline of about 8 basis points also cited. Lower yields could reduce borrowing costs and benefit AI investment, but they can also be read as a sign of weaker growth expectations and investment demand, so they did not act as an unequivocal positive for equities.

As concerns about technology earnings grew, investors shifted from stocks into relatively safe U.S. Treasuries. Increased bond demand pushed prices higher and yields lower. Stocks falling both when yields rise and when they fall on economic concerns was interpreted as a sign of stronger risk aversion in the market.

Markets are assessing how long companies’ free cash flow can withstand continued AI investment and whether additional financing will be available. Some said stock prices could recover if rates stabilize and fund flows improve, but cautioned that falling rates alone were not enough to conclude that investor sentiment would recover.

Amid conflicting reports about the war and the possibility of attacks, international oil prices were cited at $103 a barrel, up about 1.3%. An increase in geopolitical risk could lift oil prices and put pressure on inflation and interest-rate expectations, adding to stock market volatility.

Asset prices moved in different directions, with U.S. Treasury yields falling as oil rose. This was interpreted as a sign that markets were pricing in war risks, slower growth and concerns about AI investment all at once, without reaching a consensus on which factor should carry the most weight.

The central banks of the United States, Europe and Japan all held their policy rates at their latest meetings. The U.S. Federal Reserve offered no clear signal alongside its hold. With the midterm elections and upcoming economic data due next week, expectations were that the path of rates in December could depend on data released from here.

The European Central Bank also held rates, but news that President Christine Lagarde would step down before the end of her term added uncertainty. Her term was understood to run until October next year, and the prospect of a change in central bank leadership during a volatile period drew market attention.

The Bank of Japan kept rates unchanged while reaffirming its intention to continue raising them over the medium to long term. Following Japan’s declaration that deflation had ended, markets are focused more on the pace of rate increases than on whether they will occur, with quarterly hikes in December or next March among the possibilities being discussed. It was also noted that a clearer assessment would require the governor’s press conference and subsequent remarks.

Lee Kwang-soo said Samsung Electronics’ shareholder-return announcement fell short of market expectations in both scale and specificity. The range of 90 trillion–110 trillion won spans 20 trillion won, making it difficult for investors to estimate the amounts allocated to dividends and share buybacks, he argued. He criticized the company for leaving the market to make estimates instead of providing figures itself.

He said that, unlike SK Hynix, which won market approval with a clear direction and proactive approach to returns, Samsung Electronics had repeated plans that were already known. Given its sharply increased earnings and emphasis on demand and long-term contracts, the company should be able to provide clearer figures for its cash and shareholder returns for the remainder of 2026, he said.

Lee argued that Samsung Electronics should convene a special board meeting to finalize and explain its shareholder-return plan to the market rather than wait until the board meeting in January 2027. He said the company should take the share-price decline as a signal of investor dissatisfaction and present a plan with clear details and a long-term direction. He added that the low level of shareholder returns at South Korean companies reflected not only corporate attitudes but also the failure of shareholders, analysts and the media to make sufficient demands.

Lee Kwang-soo said major volatility should be viewed not only as a signal of a return to the past, but also as part of an ongoing transformation in new industries. In light of Samsung Electronics’ operating profit having risen substantially from past levels, investors should consider whether it will return to those levels or whether new demand and an altered industry structure will take hold. He stressed the need to focus on the possibility of change and seek opportunities, since investing means investing in the future.

He said he would personally start investing in domestic stocks again and proposed opening a new account with an affordable amount of money and keeping a record of each trade. Rather than stop investing because of losses, the idea is to record the reasons for buying, the expected stop-loss price and the reasons for selling, and use them to inform future decisions. The trading journal template presented on the broadcast was said to be available as a PDF for viewers to use.

Examples included buying Leeno Industrial and selling after its CEO’s block trade; buying Naver on optimism; cutting losses on Kolmar Korea due to concerns; and holding a power equipment ETF based on expected electricity demand from AI data centers. Lee said investors should assess long-term investment rationale and profit potential rather than focus on short-term events or recommendations from others.

He stressed that investors should go beyond generating many investment ideas and condense the key rationale into one or two sentences. A new account and trading journal are not tools for erasing past losses, he said, but a way to learn an investment process to repeat over the next five or ten years. He added that investors should build their judgment through record-keeping and review, even if share prices fall further.