On November 5, 2025, South Korea found itself at the epicenter of a dramatic global market rout, as fears of an artificial intelligence (AI) bubble sent shockwaves through Asian and U.S. stock exchanges. The Korea Composite Stock Price Index (KOSPI) plunged 117.32 points, or 2.85 percent, closing at 4,004.42 after dipping to as low as 3,867.81 during the day, according to Yonhap News Agency. The tech-heavy KOSDAQ mirrored this drop, shedding 16.54 points, or 2.84 percent, to end at 565.4. The damage was swift and severe: the main bourse’s market capitalization shrank by a staggering 97 trillion won (approximately US$67 billion) in just one day.
The sell-off wasn’t limited to Korea. As reported by Korea JoongAng Daily, Japan’s Nikkei 225 slid over 4 percent, breaching the 50,000 mark, while Taiwan’s Taiex dropped 1.42 percent and Hong Kong’s Hang Seng slipped 0.07 percent. The Korean won tumbled to a seven-month low against the U.S. dollar, quoted at 1,449.4 won per dollar by mid-afternoon, as foreign investors fled local equities.
What triggered this sudden reversal of fortune? The answer lies in mounting skepticism about the true value of AI companies. The previous day, U.S. tech shares had slumped, with AI software maker Palantir Technologies at the forefront. Despite reporting record third-quarter earnings of $1.18 billion, Palantir’s stock plunged nearly 8 percent in New York trading. The company’s meteoric rise—up 152.2 percent in 2025—had pushed its forward price-to-earnings (P/E) ratio above 200, fueling concerns that investors were paying far too much for future promise rather than present profits.
Jay Hatfield, chief executive of Infrastructure Capital Advisors, told Korea JoongAng Daily, “Investors have already priced in much of AI’s promise, and now they expect companies to deliver tangible results.” He added, “Even strong earnings growth may not justify a valuation as high as 200 times projected profit.” Other AI-linked giants weren’t spared: Oracle fell 3.75 percent, while Nvidia and AMD each dropped around 4 percent. The Nasdaq’s forward P/E hovered near 30, well above its 10-year average of 25, according to FactSet.
Fueling the anxiety, famed investor Michael Burry—best known for predicting the 2008 financial crisis—was revealed to have taken massive bearish positions on Palantir and Nvidia. The Financial Times reported that Burry’s Scion Asset Management held $912 million in put options on Palantir and about $1.87 billion on Nvidia as of late September. In a recent post on X (formerly Twitter), Burry cryptically remarked, “Sometimes, we see bubbles. Sometimes, there is something to do about it. Sometimes, the only winning move is not to play.”
Such skepticism isn’t without foundation. A recent Massachusetts Institute of Technology study of 153 firms adopting generative AI in the first half of 2025 found that 95 percent saw no significant revenue gains. A Korean fund manager, speaking anonymously to Korea JoongAng Daily, put it bluntly: “OpenAI is valued at $500 billion but posted a $5 billion loss last year. The gap between investment and measurable results is still wide.”
Despite the market turmoil and ballooning doubts, South Korea’s government is doubling down on AI. President Lee Jae Myung, fresh from the Asia-Pacific Economic Cooperation (APEC) summit in Gyeongju, announced a record 728 trillion won ($525 billion) national budget, including a 10.1 trillion won allocation—more than triple the previous year’s amount—to propel Korea into the ranks of global AI leaders. Nvidia, the U.S. chip giant, has pledged to supply the Korean government and four major conglomerates with 260,000 graphics processing units to support these initiatives, as reported by Korea JoongAng Daily.
“It is Korea’s first budget to open the era of AI,” President Lee declared, drawing parallels with the industrialization efforts of former President Park Chung-hee and the digital modernization championed by former President Kim Dae-jung. The budget for research and development (R&D) soared nearly 20 percent to 35.3 trillion won, reversing sharp cuts made under the previous administration.
However, the budget’s passage is far from certain. The National Assembly, tasked with approving the budget by December 2, is mired in partisan strife. The main opposition People Power Party (PPP) boycotted President Lee’s address, protesting a special prosecution’s move to seek a detention warrant for their former floor leader over his alleged role in a December 3 martial law declaration. PPP chief Rep. Jang Dong-hyeok described the situation as “war,” alleging government oppression. Some PPP legislators even heckled the president as he entered the Assembly, a scene reminiscent of past political standoffs.
While the AI budget is intended to secure Korea’s technological future, the government also faces pressure to address social vulnerabilities and strengthen national defense. President Lee’s proposal includes measures to assist those “most impacted by social changes” and signals a commitment to self-defense, especially amid ongoing discussions about transferring wartime operational control from the U.S. to Korea.
Meanwhile, the broader market context remains precarious. Analysts are divided on whether the current AI-driven surge truly constitutes a bubble. Kim Jae-seung of Hyundai Motor Securities noted that, compared to the dot-com era, today’s investment in IT infrastructure is still relatively modest. “In the early 1990s, U.S. investment in information-processing equipment rose from just above 2 percent of GDP to 2.9 percent by 2000—an increase of 0.9 percentage points,” Kim explained. “By comparison, [with the same conditions] today’s increase is roughly half that.”
Park Sang-hyun, an analyst at iM Securities, argued that it’s “too early to call this a bubble,” pointing to large-scale AI investments by the U.S. and China and the rapid mainstreaming of generative AI. Yet, caution abounds. Morgan Stanley CEO Ted Pick, speaking at the Global Financial Leaders’ Investment Summit in Hong Kong, said, “We should welcome the possibility that there would be drawdowns, 10 percent to 15 percent, that are not driven by some sort of macro cliff effect.” Goldman Sachs CEO David Solomon added that a “10 to 20 percent drawdown in equity markets” is likely within the next 12 to 24 months.
For ordinary Koreans, the day’s events were a sobering reminder of the volatility that comes with technological transformation. As the National Assembly weighs the largest budget in the nation’s history and the world watches the fate of the AI sector, South Korea stands at a crossroads. The decisions made in the coming weeks could shape not only the country’s economic trajectory, but also its role as a technological powerhouse in the years ahead.
With the stakes this high, policymakers, investors, and citizens alike are left to ponder: Is this the dawn of a new era, or a warning sign that the AI gold rush may be running ahead of itself?