Shares drop in South Korea, Japan on AI bubble fears

Shares dropped in South Korea and Japan on Wednesday on fears of overheated artificial intelligence valuations, with chip giants Samsung and SK hynix each losing over five percent.

Seoul's benchmark Kospi index was trading down 5.2 percent, while Tokyo's Nikkei index shed 3.8 percent in morning trade.

It followed a downbeat session on Wall Street as speculation mounts that a recent tech rally may have gone too far and a painful correction could be on the way.

Samsung Electronics shed 5.4 percent and SK hynix plunged more than seven percent. The firms are two of the world's leading memory chip makers.

Samsung's stock has surged more than 85 percent since the start of the year, buoyed by AI-driven market gains, even after accounting for Wednesday's sharp drop.

South Korean President Lee Jae Myung pledged on Tuesday to "significantly expand investment to usher in the 'AI era'", tripling spending in the sector next year.

Multibillion-dollar investment into AI has been a key driver of the global surge in mostly technology equities, sending valuations to record highs.

The declines in Seoul and Tokyo follow a global sell-off on Tuesday as investors weighed Wall Street's recent tech rally against mounting fears of an AI bubble.

AI-related spending is expected to reach approximately $1.5 trillion by 2025, according to US research firm Gartner, and over $2 trillion in 2026 -- nearly 2 percent of global GDP.

Geopolitical tensions are helping drive the frenzy, primarily to build data centers housing tens of thousands of expensive chips that require phenomenal electrical power and energy-hungry cooling.