Amid concerns over an AI bubble, securities firms: "Time to regroup, avoid panic selling" [Analysis+]

'Black Friday' retail investors panic

Securities firms: "Concerns over an AI bubble are excessive"

Investor sentiment on the stock market weakened amid controversy over the overvaluation of artificial intelligence (AI)–related stocks, but analysts on Yeouido's securities floor have repeatedly judged the concerns to be excessive. While there are signs of a bubble, they say it is still at an early stage and not enough to break the market's upward trend.

According to the Korea Exchange, on the 21st the KOSPI index closed at 3,853.26, down 151.59 points (3.79%) from the previous day. The index at one point fell as low as 3,838.46. It is the first time in 20 trading days since the 23rd of last month that the index has fallen below not only the 4,000 level but even the 3,900 level.

Amid comments from key U.S. central bank (Fed) officials expressing concern about an AI bubble, foreign investors sold 2.5928 trillion won worth that day. It is the largest net selling by foreigners so far this year. The two market-cap leaders supporting the securities market, Samsung Electronics and SK Hynix, plunged 5.77% and 8.76% respectively.

However, even by that day domestic securities firm investment professionals dismissed the concerns and advised that "the correction is an opportunity to add to positions."

According to AI investment information platform 'Epic AI', Park Yun-chul, a researcher in charge of overseas equities at iM Securities, released a report that day saying, "Some have pointed out that the simultaneous rise in credit default swaps (CDS) alongside corporate bond issuance could mean an 'AI bubble collapse,' but this is an excessive interpretation."

Recently, big tech firms have repeatedly invested in AI with borrowed funds ('debt-financed investing'), raising controversy over overinvestment. But Park said it is a stretch to link corporate bond issuance to a bubble collapse. He explained, "Unlike small- and mid-cap AI firms that are raising funds through corporate bond issuance followed by rights offerings and convertible bonds, big tech companies have ample cash reserves," adding, "Even if problems arise, support for AI as a national industrial priority due to geopolitical conflicts is inevitable."

Park added, "There is a recycling investment structure centered on NVIDIA, and NVIDIA itself has sufficient 'quantitative easing' capacity based on overwhelming earnings and cash."

He saw the present as an opportunity to separate the wheat from the chaff in the AI industry. He argued that companies began issuing corporate bonds as they sought lower funding costs after the October Federal Open Market Committee (FOMC) weakened the rate-cutting narrative, and that viewing this as a 'bubble collapse signal' is excessive. Park said, "As the AI investment cycle has entered a 'debt-financing' phase, only a few that have proven profitability will remain winners," adding, "Policy and interest-rate environment changes will test corporate resilience."

Kim Du-eon, a domestic and international equity market researcher at Hana Securities, also said, "There is a bubble in the AI sector, but I believe it is still far from bursting," and advised, "Given expected policy support and a potential renewed leap for the Korean market, 'panic selling' should be avoided."

He emphasized that "the current stock market is merely a pause for reorganization that often appears within a bull market," and that there is still a long way to go before the 'AI bubble' becomes a reality. He added, "Even judging by Goldman Sachs' criteria for an AI bubble, and based on internal assessments at our research center, now is a time to 'accumulate,'" explaining that "NVIDIA, the last of the Magnificent 7 (M7) to report strong results, has eased concerns about AI capital expenditure."

Lee Sang-yeon, a stock strategy researcher at Shin Young Securities, said, "Typically, a correction range is a 10–15% decline from the index's recent peak, so there is still some room for adjustment," and added, "The current market situation should be seen as a corrective phase rather than an entry into a full-blown bear market."

Shin Min-kyung, Hankyung.com reporter radio@hankyung.com