Goldman Sachs cuts Kospi price target by 25% after AI crash

Goldman Sachs has cut its price target for the South Korean Kospi index by 25 percent. The US investment bank is thus reacting to the sharp fall in the price of AI shares, which is causing unrest worldwide.

Remarkably, Goldman remains positive. According to the bank, the South Korean stock market can still rise by more than 60 percent from its current level.

The investment bank has lowered its price target for the South Korean Kospi index for the next twelve months from 12,000 to 9,000 points.

The adjustment follows a difficult period for the stock market. Since the peak in June, the Kospi has fallen by more than 35 percent.

That's a striking turnaround. Earlier this year, South Korea was among the best-performing stock markets in the world. Goldman Sachs even raised its price target to 12,000 points in June and held on to it for a long time.

In particular, concerns about the huge investments in artificial intelligence are now weighing on the market. Big tech companies are spending hundreds of billions of dollars on data centers and other AI infrastructure, while investors are doubting whether that spending will generate enough profit.

The rising financing costs are also increasing these worries.

The South Korean stock exchange is particularly sensitive to this development. Chip manufacturers Samsung Electronics and SK Hynix are among the most important companies in the Kospi and play a major role in the production of memory chips for AI systems.

The selling pressure at these companies has now spread to the rest of the South Korean stock market.

Despite the lower price target, Goldman Sachs remains positive about the South Korean stock market. According to analysts led by Timothy Moe, the shares have now fallen so sharply that they are attractively priced.

“The market assumes a far too negative picture of the underlying business results,” the analysts write in a report dated 25 October.

This is also reflected in the valuations. Investors currently pay an average of only four times the expected annual profit for companies in the Kospi. According to Bloomberg, that is the lowest valuation since 2006 on any of the eighteen stock markets surveyed.

South Korean equities are therefore about twice as cheap as Indonesian equities in terms of expected earnings.

Especially with chip companies, Goldman sees a big difference between the stock market prices and the expected operating results. According to the bank, these shares have now been valued so low that investors seem to be expecting a 65 percent drop in profits in 2027. Goldman finds that scenario far too pessimistic.

The rest of the South Korean stock market is also relatively cheap. Non-memory chip companies, which together represent about half of the Kospi, trade at an average of 7.6 times the expected annual profit.

Goldman Sachs doesn't just see opportunities in technology companies. The bank also remains positive about companies in the electricity sector and industry, and companies that benefit from improvements in South Korean corporate governance.

In addition, analysts expect opportunities at companies that benefit from a recovery of the domestic economy and the international popularity of Korean culture.

The biggest uncertainty remains the AI sector. Investors doubt whether the hundreds of billions of dollars that technology companies invest in artificial intelligence will yield sufficient returns. As long as these concerns persist, chip companies and thus the Kospi can remain under pressure.