SynopsisSouth Korea's Kospi index dropped significantly, led by chip stocks. Investors questioned the sustainability of record earnings driven by artificial intelligence demand. Samsung Electronics and SK Hynix, major index components, saw substantial declines. Other sectors like battery and shipbuilding also faced considerable losses. Foreign investors continued to be net sellers of South Korean equities.Getty Images Samsung Electronics and SK Hynix account for more than half of the Kospi index.South Korean benchmark index Kospi tumbled more than 5% on Tuesday, with heavyweight chip stocks leading the decline as investors questioned whether record earnings driven by artificial intelligence demand could be sustained.The benchmark KOSPI was down 505 points, or 6.2%, at 7,546.10. The sharp fall during the session triggered a "sidecar" trading curb, temporarily suspending programme trading.Samsung Electronics dropped 7.47% despite projecting a 19-fold jump in second-quarter operating profit from a year earlier. The earnings forecast exceeded the company's combined profit over the previous three years, supported by the AI-led boom that has pushed memory chip prices to record highs. Also Read | Samsung flags 19-fold jump in profit, but shares slump on jitters AI boom may stallFellow chipmaker SK Hynix declined 6.70%. Together, Samsung Electronics and SK Hynix account for more than half of the Kospi index. The company launched a US share sale to raise about $28 billion, seeking to tap global investor demand for companies tied to the artificial intelligence boom. The company plans to issue American depositary receipts on Nasdaq, in what could become one of the largest foreign listings in the US. The shares are expected to trade under the ticker SKHY.Other laggards included battery maker LG Energy Solution fell 6.77% after saying its April-June operating profit is expected to drop 77% as weak electric vehicle demand continued to weigh on battery sales.Hanwha Ocean slumped 22.91% after Canada chose German submarines instead of South Korean competitors in an ongoing contract contest. Among other major stocks, Hyundai Motor lost 6.57% and affiliate Kia Corp fell 5.66%. Steelmaker POSCO Holdings declined 3.27%, while drugmaker Samsung BioLogics slipped 0.57%.Of the 910 stocks traded, 357 advanced while 511 declined. Foreign investors remained net sellers, offloading shares worth 1.3 trillion won ($851.45 million).Is AI rally overdone?The sharp decline has reignited concerns over whether the rally in AI-related semiconductor stocks has run ahead of fundamentals. South Korean chipmakers have been among the biggest beneficiaries of booming demand for advanced AI hardware, but the latest selloff highlights how quickly sentiment can deteriorate when investors begin questioning the durability of that demand.Also Read | Non-AI Nifty suddenly beating Nasdaq, South Korea & Taiwan bourses: Is the global tech trade finally reversing?Pressure on the sector has also intensified after reports that Apple Inc. is in discussions to source chips from two Chinese semiconductor manufacturers, raising fears that Samsung Electronics and SK Hynix could face stronger competition. Korea retains top spotDespite the recent slump, the Kospi remains the world's best-performing major stock index in 2026, having advanced 76% so far this year, driven largely by the surge in AI-linked semiconductor stocks. Demand for AI infrastructure has soared over the past year as technology companies race to build more powerful AI models and expand computing capacity. The resulting increase in orders for high-bandwidth memory chips has fuelled a strong rally in Korean chipmakers, which occupy a key position in the global AI supply chain.However, South Korea's dependence on a small number of semiconductor heavyweights has also made its equity market more vulnerable to abrupt changes in sentiment surrounding the AI theme.(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)Read More News on(What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .) Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today. 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