Silicon Valley to Seoul, watch AI exuberance

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.

Overall Analysis

The editorial examines the growing enthusiasm surrounding Artificial Intelligence (AI) investments and cautions against the possibility of an asset bubble similar to the dot-com boom of the late 1990s. While acknowledging AI’s transformative potential, the author argues that excessive investor optimism and soaring valuations could expose financial markets to significant risks if expected returns fail to materialize.

The editorial begins by highlighting the recent volatility in global stock markets, linking the decline in major indices such as South Korea’s Kospi, Japan’s Nikkei, and the US Nasdaq to investor concerns over whether massive AI-related investments can generate adequate profits. By drawing comparisons with the dot-com bubble, the author reminds readers that excessive market optimism has historically led to sharp corrections when expectations outpaced reality.

The discussion then shifts to the global nature of the AI investment boom. The editorial points out that technology firms across South Korea, Japan, and the United States continue to attract enormous investor interest despite growing concerns. Companies manufacturing AI chips, semiconductors, and AI services have witnessed rapid appreciation in their stock prices, while upcoming public listings of major AI firms reflect sustained market confidence. However, the author balances this optimism with economic realities, explaining that persistent inflation may compel central banks, especially the US Federal Reserve, to raise interest rates. Higher borrowing costs have historically reduced speculative investments and triggered corrections in overvalued asset markets.

In the final section, the editorial turns its attention to India. Unlike several developed economies, Indian stock markets have not significantly benefited from the global AI investment wave. Instead, India has experienced sustained foreign capital outflows and declining foreign direct investment, placing pressure on the rupee. While easing crude oil prices and government measures have provided some relief, the author argues that these are temporary solutions. The editorial concludes by emphasizing that India must undertake structural reforms to improve its investment climate, attract long-term domestic and foreign capital, and strengthen its position in the evolving global technology landscape.

Overall, the editorial presents a balanced economic analysis, combining caution with policy recommendations. It neither dismisses AI’s long-term potential nor supports unchecked investor enthusiasm, advocating instead for realistic valuations and stronger economic fundamentals.

Important Vocabulary (5)

1. Exuberance – Excessive excitement or optimism, especially in financial markets.
2. Monetisation – The process of generating revenue or profits from an investment or asset.
3. Hyperscalers – Large technology companies that operate massive cloud computing and data centre infrastructure.
4. Euphoric – Characterized by intense excitement, confidence, or optimism.
5. Dwindled – Gradually reduced or diminished over time.

Conclusion & Tone

The editorial warns that while Artificial Intelligence offers immense technological and economic opportunities, excessive investor enthusiasm could create unsustainable market valuations. It urges India to focus on improving its investment ecosystem so that it can attract stable capital and benefit from future technological growth without falling prey to speculative excesses.

Tone: Analytical, cautionary, balanced, and policy-oriented.