AI Fears Spur EM Tech Selloff; Kospi Tumbles 3.3%

EM stocks are bracing for their worst week since April as mounting concerns over an AI bubble begin to ripple through global markets. A recent selloff on Wall Street triggered fears that soaring valuations in the sector might not be justified. Investors are now questioning whether the AI boom has outpaced real-world applications and returns.

South Korea's Kospi index fell more than 4% on Friday, with tech heavyweights like Samsung and SK Hynix bearing the

brunt of the decline. Japanese markets also saw steep losses, as SoftBank Group Corp. dropped nearly 11%. The Nikkei 225 fell 2.3% in morning trade as worries over overvalued tech firms intensified.

Taiwan's Taiex index plummeted 3.1%, the steepest decline since April, while Japan's tech names continued to lose ground. The selling pressure was fueled by concerns that AI spending may not deliver the returns many investors had anticipated, particularly in the wake of recent U.S. jobs data that dimmed hopes for further rate cuts.

How Markets Reacted

Investor sentiment has turned sharply risk-off as fears of a potential AI bubble resurface. Asian tech firms, once riding a wave of optimism from the AI revolution, are now seeing capital retreat to safer assets. South Korea's KOSPI index closed down 3.32% on Friday, with major chipmakers and related tech stocks experiencing some of the worst losses in the sector. Foreign investors pulled about $374 million out of the market, contributing to a weakening South Korean won against the U.S. dollar according to market analysis.

The selloff was not confined to Asia. On Thursday, the S&P 500 hit a two-month low, with NVIDIA, the bellwether of the AI sector, dropping 3.2%. Although the chipmaker had initially rallied on upbeat earnings guidance, the gains were short-lived as investors grew skeptical about the sustainability of AI-driven growth according to market reports.

Risks to the Outlook

The recent drop in AI-related stocks has raised fresh concerns about the sector's fundamentals. Some analysts are pointing to overextended valuations and a lack of clear profitability in many AI companies. C3.ai, an enterprise AI software firm, is a prime example of the sector's turbulence. The company reported a 19% year-over-year revenue decline and a net loss of nearly $117 million in its most recent quarter. C3.ai is now exploring a potential sale after founder Thomas Siebel stepped down as CEO due to health issues according to company disclosures.

Palantir Technologies, by contrast, has maintained a strong upward trajectory, defying the broader market's volatility. The firm reported record revenue of $1.18 billion in Q3 2025, a 62.8% year-over-year increase. Palantir's success is largely attributed to its deep government and enterprise contracts, which have provided stable, long-term revenue visibility according to financial analysis.

What This Means for Investors

The current selloff presents both challenges and opportunities for investors. For AI companies like C3.ai, the road to recovery appears uncertain. The company faces significant revenue and margin pressures, and its market cap has fallen to under $2.1 billion, a sharp decline from its peak. Analysts remain split, with some viewing the drop as a buying opportunity and others warning of further deterioration in the near term according to market research.

On the other hand, firms with strong fundamentals and diversified revenue streams, like Palantir, may be better positioned to weather the storm. The company has a robust balance sheet, with $6.44 billion in cash and no long-term debt. It also operates at high margins and has expanded its partnerships with major players like NVIDIA, enhancing its competitive edge .

For now, the broader market remains in a state of flux. The AI sector, which was once seen as the next big thing, is now being scrutinized more closely. As investors reassess risk and reward, the next few weeks will be critical in determining whether this selloff is a temporary correction or a sign of deeper challenges ahead.