Silicon Valley to Seoul, watch AI exuberance

Indian markets have not been part of this AI play. Foreign capital has, in fact, been exiting the country

The last few days have seen stock markets across the world wobble as concerns over the AI cycle weigh heavy on investors. On Tuesday, Asian markets fell sharply, led by South Korea’s Kospi, which plunged by nearly 10 per cent. Japan’s Nikkei 225 was down 3.5 per cent and Nasdaq, too, witnessed weakness, falling by almost 4 per cent since last week. Questions are increasingly being raised over monetisation of capital spending by tech firms and the high valuations they command. As per Goldman Sachs, the AI hyperscalers are expected to spend more than $5 trillion on technology and data centres by 2030. Parallels are now being drawn with the dotcom bubble. Then, as now, investor exuberance had dramatically driven up share prices of tech firms. And when the bubble burst, it took Nasdaq years to fully recover.

Despite these concerns, capital has been flowing to companies linked to the AI cycle in all parts of the world. In Korea, for instance, SK Hynix and Samsung have seen euphoric investor interest. As per reports, the two now account for a sizeable share of the South Korean market. In Japan, companies like Advantest, Tokyo Electron and Kioxia have all seen their shares surge. In the US, AI behemoths — Anthropic and OpenAI — have begun the process to launch their initial public offerings. These will follow SpaceX’s recent mega IPO, pulling in even more capital. Investor exuberance is, however, likely to run up against a macro reality. In the past, asset bubbles have tended to be pricked by central banks raising interest rates. And with inflation edging upwards in the US — CPI rose to 4.2 per cent in May — it raises the possibility of the Federal Reserve tightening policy in the months ahead.

Indian markets have not been part of this AI play. Foreign capital has, in fact, been exiting the country. In 2025, foreign portfolio investors took out $18.9 billion from the stock markets, and so far this year, outflows have been just shy of $30 billion. Alongside, net FDI flows dwindled to $1 billion in 2024-25 and $7.7 billion in 2025-26. Along with high crude prices, this put pressure on the rupee. In recent weeks, however, oil prices have softened considerably, and measures have been taken to boost capital flows and help stabilise the currency. But more needs to be done. Steps should be taken to improve the country’s attractiveness as an investment destination, for both domestic and foreign investors.