South Korea’s AI Bubble Just Popped

So just three weeks ago, South Korea had the best-performing stock market in the world. The stock market is something called the KOSPI, and it's gone up almost 200% in the last 12 months. Compared to other stock markets like the US's S&P 500, which only made 24%, South Korea was just on another level. At one point this year, one of their companies, Samsung, was up over 500%, and SK Inyx was up over 1,000%, and that's basically a 10x on your money, which is just unheard of. Now, here in the US, our equivalent of the stock market is something called the S&P 500, represented by ETFs like this one, VOO. And inside of this ETF, the top 10 companies represent 36% of this index, which historically is a very high concentration. But for South Korea's KOSPI, just two companies alone, Samsung and SK Inyx, represent over 56% of their whole stock market. And that's all mostly thanks to regular people, or retail investors, that have just borrowed money to invest into the stock market. And that's roughly 14 million retail investors, they've put their savings and a huge amount of borrowed money into those two stocks. And then, in just 21 days, everything started to collapse. The KOSPI dropped 25%, and because of that, 1.2 million accounts, which works out to be one in every 30 people in the country, got hit with something called margin call thresholds. This is what happens when a stock goes down far enough to trigger the loan on the borrowed money to liquidate, or basically be forced to sell off their stock investment, even if it's at a loss. And that's why over 3 trillion won in investments were liquidated, which means they were automatically sold by brokers, while Korean investors couldn't do anything about it. 320,000 accounts were just wiped out, some of them overnight. It got so bad that the president of South Korea held an emergency intervention for their stock market. Now you might be thinking, okay, well that's unfortunate for South Korea, that's kind of their problem and it doesn't affect me. But South Korea is doing the exact same thing as the United States. They're both running the same version of the same technique, but Korea is just doing a faster, smaller version of the same leverage mechanism the U.S. is. Which means, what happened to South Korea, and what is happening to their stock market right now as you're watching this video, might actually be a preview of what's about to come to the U.S. So in today's video, I want to show you exactly what's happening and how this could affect investors here in the U.S. So with that said, let's get into it. Hi, my name is Andrei Jikh. Hope you're doing well. Come for the finance and stay for South Korea's market crash. So let me explain what's happening first and how it's all kind of happening in parallel to the United States. So in South Korea, there's about 51 million people, 14 million of them, or one in four are what's called retail investors. Now, they call themselves ants because individually, one ant is small and they don't matter. But 14 million ants working together, well, they can move the whole market. Makes sense. And for the last year, that's exactly what they've been doing. Why? It's because South Korea has a cultural expectation that by a certain age, you're supposed to have a good job. You're supposed to own a home, supposed to start a family. And the problem is housing in Seoul, Korea, has become so expensive that for a lot of young people, owning a home stopped being a realistic goal. In South Korea, there is an expectation that at a certain age, you want to have a good job, you want to own a house, and then you want to start a family. Young people who feel like they're out of options to own a house are starting to invest in stocks so they can start to build wealth. So a whole generation was like, OK, well, if I can't build wealth through owning a house, the stock market is the only thing I can do. And one of their biggest finance influencers actually said that their last chance to build wealth is the stock market. And if they don't succeed, they're just going to get left behind. So about 14 million people also think this way, which is why they don't just invest. They go all in with leverage. This is where people take out personal loans to buy stocks. They borrow against their salaries. And a huge number of them didn't even buy regular stocks. They buy what are called leveraged ETFs. Now, a leveraged ETF is a mutual fund that multiplies the effects of whatever is happening in the stock market. For example, a 2x fund means if the stock market goes up one percent, you make two percent. A 3x fund means you make three percent, which sounds amazing. But the catch is that it also works exactly the same in reverse, right? There was one investor in a documentary about this who wouldn't even show her face on camera because her family didn't know how much leverage she was using. Her portfolio was worth over 650 thousand dollars and she was up 150 percent. And her biggest holdings were these leveraged ETFs. At the peak, Koreans invested about 10 trillion won into leveraged funds betting on just one company. It got so bad, even South Korea's government that allowed them this said, we should probably not have done that. Right. And what all these people were investing in were basically these two stocks, Samsung and SK INEX. These two companies make up more than half of the whole Korean stock market, the KOSPI. Remember that for context, the U.S.'s S&P 500 has 500 companies. Korea's index technically also has hundreds, too. But in practice, over half of that stock market is made up of just those two stocks. So basically, the Korean stock market kind of trades like a volatile penny stock. Now, OK, hold on. Why did those two stocks go up so much and why they went up is because of A.I. and memory, because A.I. data centers need a lot of memory chips, which are basically specialized semiconductors that store and feed information to A.I. processors. And the two companies that dominate that market are Samsung and SK INEX. This is where the U.S. stock market comes in. Companies like Microsoft, Google, Amazon, Meta, they have spent $376 billion on A.I. infrastructure in 2025. And this year in 2026, they're on track to spend $725 billion. And a huge chunk of that money has gone straight into South Korea. So all of these retail investors are not just betting on Korean companies. Korea, as a country, is betting on American A.I. spending because that's what's holding up the world stock market. That is how by July we had the most concentrated major stock market in the world held up by leveraged retail investors betting on one trade continuing forever. That's what happened. And now this is sort of starting to go in the other direction where people are losing a lot of money. OK, so then the question is, well, what actually popped it? What's forcing all these people to sell off their stocks? And the answer is we did. The United States. Here is how. Now, before I explain that, have you noticed recently that you're getting a lot more phone calls and emails and spam all throughout the day? That's because there are hundreds of companies called data brokers that are legally collecting our personal information, our name, home address, phone number, even our relatives and selling it to anyone with a credit card. And that's why this segment is sponsored by Delete Me. I've personally been a member since April 2024, and they have scanned thousands of listings and removed over 68 instances of someone selling my info. They have easily saved me dozens of hours trying to find this all myself and an estimated 14 and a half hours of trying to get this info removed. Thankfully, Delete Me just runs in the background automatically and I don't have to do anything. They were just named the number one data removal service by Wirecutter and real people are actually doing the removal work. It's not some outsourced third party. It'll help protect you from the risks of your data being out there in the wrong hands. And it takes about five minutes to set up. The link is down below or you can go to join delete me dot com forward slash Andre 20 to get 20 percent off. Thank you to Delete Me for sponsoring the segment. And now let's get back to it. So here's how the US has sort of popped the bubble in Korea. In late June, chip stocks in the US started selling off. That's because investors were getting nervous ahead of earnings from a very important company for the A.I. story, which is Micron. That is America's biggest chip maker. And it's also a competitor to Samsung and SK Inex. And when U.S. memory stocks started going down, the same thing started to happen in Korea, except way harder. Remember, the KOSPI is not a diversified market. It's a two stock stock market. So in one session, the KOSPI dropped something like four point six percent. And then a week later, Samsung and SK Inex both went down more than nine percent in just one day. And then came the day that Koreans are now calling Black Tuesday, which is where the KOSPI went down more than 10 percent in just a day. And that is one of the worst drops in the whole history of the Korean stock market. For context, a 10 percent one day drop in the U.S. stock market, that would be the third worst day in American history, only behind 1987 and the Great Depression. Now, in a normal market, when there is a sell off, the drop usually ends when the sellers stop selling. Makes sense, right? But this one did not stop there because when a stock market is built on borrowed money, aka leverage, nobody needs to sell. The selling happens automagically. How? It's because when you buy stocks with borrowed money and those stocks go down to a certain price level, your broker sends you a margin call, which is basically where they say, hey, deposit more cash by tomorrow morning or we sell all your stocks for you. And if you don't have the money, the broker sells your shares at whatever price. OK, they don't wait for a better price in the market. They do not care that you're down 40 percent. They just do it. Now, all of this forced selling pushes the stock prices down even more, which triggers more margin calls for the next group of investors who maybe got in a little earlier, which pushes the price down even more, which triggers more margin calls. You get the idea. It's a doom loop. Now, under normal conditions, about 2 percent of Korean margin accounts get forced liquidated. But during this crash, that number went higher than 10 percent, which is about five times the normal rate. And that is also because all of these leveraged ETFs made everything so much worse, because if you're holding a 3x leveraged fund on a company like SK INEX, for example, and the stock drops 10 percent in a day, well, you just lost 30 percent. But it's even worse than that because of how these funds work. They have to rebalance every day, which means at the end of a big down day, the fund has to sell into a falling market to maintain its leverage ratio. So retail investors were getting liquidated and the funds were forced selling on top of them. Right. And every sale made the next sale more and more likely. And this didn't even stay inside of Korea because over the next two days, more than 600 billion dollars got erased from Asian markets. Japan went down more than 4 percent. Taiwan went down. Hong Kong, China. At one point, the only thing that stopped the KOSPI from going down even more was that the market was literally closed for a national holiday. It got so bad that the president, who, by the way, was the same person who spent a year encouraging people to get into the stock market. They called an emergency meeting to try to stabilize the market. But the truth is, is that even right now, the leverage is still there. So that's what's happening in South Korea. But now I want to show you how all of this could end just as badly for the U.S. stock market as well and how this could end badly for the U.S. is because of how much margin debt our stock market has. And here it is. This is all the borrowed money Americans are using to buy stocks measured as a percentage of the whole U.S. economy. So look at the little red arrows on this chart. Every single one of them marks a moment in history. For example, in June 1968, that was right before the market lost a third of its value. December 1972 was right before the 1973 crash. August 1987 was two months before Black Monday, the worst day in stock market history. Then March 2000, the exact month the dotcom bubble peaked. Then July 2007, that was months before the financial crisis. January 2018, August 2021, both followed by pretty big corrections. So every time U.S. margin debt went to an extreme, a crash happened almost right after every single time. Now, look at where we are today. As of June 2026, U.S. margin debt just hit roughly four and a half percent of GDP. That is the highest level ever recorded in American history. This is higher than the dotcom bubble, higher than 2007, higher than even the 2021 meme stock everything bubble. And it's higher by a lot. This June number, by the way, was released this past week. The U.S. basically printed the biggest margin debt reading of all time. But it gets even worse because that number is actually lower than what reality really is. And that's because the official margin data only tracks one kind of borrowing, which is traditional margin loans at brokerage accounts. What it doesn't show us are leveraged ETFs, options, portfolio margin, private credit, all the modern new ways that people take on leverage, right, which doesn't actually show up in the official statistics. So I couldn't show you them here. So those leveraged ETFs that blew up Korean investors, they're the same ETFs we have. They're doing the same things with hundreds of billions of dollars in them, including 2x funds on single stocks like Nvidia and Tesla. We have zero day options where people gamble on what the stock market does in the next six hours. They're all trading at record volumes. The stock market has turned into a literal casino at this point. So this chart actually shows the floor of how much leverage might be in the system. In reality, there's probably a lot more. Now, also think about what's actually holding up the U.S. stock market right now. The top 10 stocks are 36 percent of the S&P 500, and almost all of them are making the same bet. That bet is on AI. Nvidia sells the chips, Microsoft, Meta and Google buy the chips, Micron supplies the memory, and they pass all this money back and forth to each other, which is artificially boosting their earnings, which makes this whole growth story believable. But what's really propping up the whole stock market right now is AI spending. It's companies like Microsoft, Google, Amazon and Meta spending three quarters of a trillion dollars a year, which happens to be the revenue of Nvidia, of Micron and of the whole AI trade. One company's spending is another company's earnings. It's kind of a loop. Jim Chanos, the guy who called Enron, said that the returns on all this spending are already going down. But basically, it's gone from, as a group, 40 percent a year and a half ago to about 20 percent today. And if the spend keeps up at this kind of rate, it's going to be moving toward 10 percent. And then you're going to have real issues. A year and a half ago, hyperscalers were earning about 40 cents of operating income on every incremental dollar they invested. Today, it's about 20 cents and it's going towards 10. At some point, if not already, some CEO of a trillion dollar company will ask, does it make sense for our company to pay this much for AI if we're only making a couple billion dollars on it? For the U.S., it's OpenAI and Anthropic. They're the AI story and they still lose tens of billions of dollars a year, but they make up 70 to 80 percent of all the AI compute demand. So the whole pyramid structure kind of looks like this. Unprofitable AI companies justify hyperscaler spending, justifies chip earnings, justifies the stock market, which is being bought with record amounts of borrowed money. That's the whole structure. And where it starts to look like this could be the beginning of the end is companies are now flooding the market with new IPOs. In 2026, IPOs have come to market at over 12 percent of GDP in post IPO market cap. Now, the previous record was the peak of the dotcom bubble at just 5 percent. We're at more than double the 1999 level. Now, historically, when companies create this many IPOs, that usually means insiders think that prices are as good as they're ever going to get for a really long time, which is why they're selling to us, to the retail people. So then the question is, well, is there some kind of a warning sign that we can watch for to know when the bubble might really pop? And as it turns out, there is one number we can look at right now, and that number is capital expenditures of specifically four companies, Microsoft, Google, Amazon and Meta. That is it. That is the one number that's holding up the whole global stock market. Now, think about it like this. The whole Korean stock market crashed because investors got nervous that memory spending might slow down. Not that it did slow down, just that it might. Now, imagine what happens when one of these four major companies on an earnings call actually says we're reducing our AI capital expenditures. That would be really bad because the only reason these companies have been spending this insane amount of money is only because the stock market keeps rewarding them for it. Every time their capex spending goes up, their stock goes up as well. And that's starting to change. They're saying that the first hyperscaler to cut back on AI spending will be rewarded by the market because investors are getting tired of just investing money with no returns on AI income. And when saying that they're lowering their spending and the market is rewarding them for it instead of punishing, that is when this unwind could start to happen. Now, this has actually happened before. In the year 2000, Coca-Cola needed 10,000 routers from Cisco. By 2001, they needed only 2000. They just cut back on their orders. And because of that, Cisco's earnings collapsed and the NASDAQ went down 78 percent. That is what a capex cut does to the suppliers. Now, if Microsoft cut AI spending by 20 percent, for example, Microsoft might be fine. But Nvidia's revenue, Microsoft's revenue, Samsung and SK Onyx's revenue, right? It's not their spending cut, but that would be their earnings collapse. Jim Chanos thinks that we could get that moment soon. His words are sometime in late 2026 or 2027. We're going to get a point in late 26, 27 where, you know, people are going to start putting pencils to paper besides us and say, wait a minute. Does this next trillion dollars make sense if you're only going to earn 50 billion on it? We can earn that on treasuries. Maybe it's when Shrek 5 comes out. I don't know. Every Shrek movie seems to coincide with the market reaching a peak. Shrek 1, for example, in May 2001, that was the top of the dotcom bubble. Shrek 2, May 2004, post-war correction. Shrek 3, May 2007, pre-subprime crisis. Shrek 4, May 2010, flash crash. Shrek 5 scheduled to be released June 2027. Obviously, that's a joke. And it's my way of saying no one knows what's going to happen and the dates don't perfectly line up, but it could happen. And it would be so ironic because it kind of lines up with what Jim Chanos is saying about when the bubble might pop. Either way, though, there's two scenarios that could happen. Scenario number one is Korea stays contained to just Korea. Memory prices stay the same. Hyperscalers keep spending through 2027 and the KOSPI eventually recovers. Some analysts genuinely believe that the AI boom has another six to twelve months of growth, and that is very possible. Scenario number two is Korea was just a warning. It is the first domino. And the moment one hyperscaler cuts back on capex, they cut back on spending. That's when this leveraged U.S. market that is the most leveraged in U.S. history. That's when we'll get to find out what happens when a four and a half percent of GDP and margin debt starts to unwind. And we kind of just got a preview of what that could look like because Korea just showed us, which is margin calls. It is for selling and the doom loop and government intervention. For now, the analysts and the market are telling us that they have the utmost confidence that AI will continue to grow and that this is definitely not a bubble. But there was a tweet I saw that sort of compared all this to April 1912 as reports were coming in that the Titanic was in trouble. The vice president of the company that owned it said, we have absolute confidence in the Titanic. We believe the boat is unsinkable. He said that after it hit the iceberg and it was already sinking. And that's how these things tend to go. 14 million Korean investors also had absolute confidence that three weeks ago the market would continue going up. Now, this is not financial advice, and I'm not telling anyone to not invest their money, but I want you to know that this is what's happening and to be really careful with leverage and debt, especially at a time like this. Now, in the future, I think AI will probably change our lives for the better. And there will be companies worth tens of trillions of dollars. Right. But for now, investors are paying future prices in the present time, as though these companies have already accomplished all the things they promised us. If you'd like to see more of my thoughts about the economy, as well as updates on my own investments from time to time, those videos live in the premium member section where I post a day early and I post my extra thoughts. If that is valuable to you, the link is down below. I'd love to get to know your thoughts. As always, I hope you have a wonderful rest of your day. Smash the like button. Subscribe if you haven't already. I'll see you next time. Take care.