[Market ING] KOSPI Shaken by AI, Expected to Continue Fluctuating Around 4,000 Points

Weekly KOSPI Projected Range: 3,850 to 4,200 Points

The KOSPI index experienced volatility driven by artificial intelligence (AI) last week, with the 4,000-point level breached twice, but ultimately ended the week above 4,000. It is expected that the KOSPI will continue to fluctuate around the 4,000-point mark this week as well.

Yonhap News Agency

Last week, the KOSPI fell by 3.52% and the KOSDAQ by 2.35%. Kang Jin-hyuk, a researcher at Shinhan Investment Corp., explained, "There was a sell-off in tech stocks due to continued doubts about AI profitability stemming from Oracle, but some of the losses were offset by Micron's strong performance. However, persistent concerns over AI profitability are increasing market fatigue."

Ongoing concerns over AI profitability are weighing on the stock market. Na Jeong-hwan, a researcher at NH Investment & Securities, stated, "After Oracle's earnings announcement, controversy over AI profitability intensified, causing increased volatility in IT stocks. However, Micron's positive earnings guidance led to a rebound in related stocks. There is ongoing debate in the market regarding the verification of AI profitability, and this is actually seen as a factor that prevents an AI bubble from bursting. In the short term, skepticism toward AI may persist, but if there is an expansion of AI investment project announcements after 2026 or improvement in AI-related earnings such as TSMC's monthly sales, expectations could rise again."

Lee Kyung-min, a researcher at Daishin Securities, commented, "Investment in the AI industry is shifting from a focus on expansion to a phase of verifying efficiency and financial stability. While Oracle's credit default swap (CDS) reached its highest level since the financial crisis, CDS levels for Broadcom, AMD, and Intel continue to stabilize. The possibility of a widespread deterioration in AI profitability or financial structure uncertainty appears to be limited."

Earlier, on December 18 (local time), Micron alleviated market concerns by reporting solid results. Micron's first-quarter revenue was $13.64 billion, surpassing the market expectation of $12.84 billion and marking a quarterly record high. For the next quarter, Micron provided guidance of revenue between $18.3 billion and $19.1 billion and earnings per share (EPS) between $8.22 and $8.62. Lee noted, "This is well above the market expectations of $14.4 billion in revenue and $4.71 in EPS. Business performance is expected to continue strengthening through fiscal year 2026. As a result, the semiconductor industry is likely to enjoy a prolonged upcycle and momentum, somewhat removed from the controversy over AI industry profitability."

Due to thin trading volume and other factors, it is expected that the KOSPI will continue to move sideways near the 4,000-point level this week. Kang observed, "With a lack of earnings events and the Christmas holiday, trading volume has become thin, while market sensitivity to issues has increased. The KOSPI is likely to continue its tug-of-war near the psychologically important 4,000-point support level amid weak buying pressure."

There are also opinions suggesting that the potential for increased valuation appeal should be noted. Na pointed out, "While the KOSPI is moving sideways around the 4,000-point mark, its 12-month forward price-to-earnings ratio (PER) stands at 10.7 times, which is in the top 31% of the distribution since 2005, and the 12-month trailing price-to-book ratio (PBR) is 1.37 times, in the top 22%. Given that the KOSPI's PER is in the 10-11 times range, it is difficult to say that valuation pressure is high at current levels. On the contrary, as corporate earnings forecasts are being revised upward, there is potential for the KOSPI's valuation appeal to increase going forward." NH Investment & Securities presented a projected KOSPI band for this week between 3,850 and 4,200 points.

Key events scheduled for this week include Korea's December (1st-20th) export data on the 22nd, the United States' third-quarter gross domestic product (GDP), October durable goods orders, and November industrial production on the 23rd. On the 24th, the United States will release the December Richmond Federal Reserve manufacturing index and the December Conference Board consumer confidence index.