AI investment returns remain questionable, South Korean stocks drop 1.4%, Samsung falls over 4%, oil prices decline, gold prices soften

Alphabet, Google's parent company, disappointed the market with its earnings, while Samsung Electronics failed to announce a shareholder return plan. Back-to-back earnings disappointments from two tech giants abruptly halted this week's rally in technology stocks, reigniting doubts about whether massive AI investment can deliver sufficient returns.

Alphabet shares plunged 10% after hours, as its sales fell short of market expectations, amplifying concerns that Google, despite investing hundreds of billions of dollars in AI, is still losing ground to competitors. Samsung Electronics' shares in Seoul fell over 6% at one point due to the company's failure to announce a new shareholder return plan, leaving investors disappointed. The Korea Composite Stock Price Index (Kospi)—considered a global bellwether for AI trading—declined by 1.2%, a sharp contrast to Wednesday's session, which saw the biggest one-day gain since July, thanks to SK Hynix's strong earnings. Nasdaq 100 index futures dropped 1.1%.

This earnings season is turning into a stress test for the AI investment theme. Investors increasingly demand concrete evidence that heavy capital expenditures are translating into solid profit growth. Amazon will report results later this week, followed by Apple next week, and whether market sentiment will stabilize remains to be seen.

"The market is responding to the cautious signals sent by Fed Chair Warsh, which may be related to perceptions of excessive optimism in the AI sector," said Eugene Leow, strategist at DBS Bank Singapore. "A preference for safe-haven assets, along with expectations of a potential slowdown in AI activity, is putting downward pressure on yields."

• The Kospi in Seoul fell 1.2% to 5940 points. Samsung Electronics dropped more than 4%. SK Hynix rose nearly 4%.
• Nasdaq 100 index futures declined 1.1%.
• The Japanese yen was little changed at 157.83 per dollar.
• The two-year U.S. Treasury yield fell 2 basis points to 4.68%; the 10-year Treasury yield also dropped 2 basis points to 5%.
• Japan’s 10-year yield was unchanged at 2.825%.
• Gold edged down 0.7% to about $4,040 per ounce.
• Brent crude slipped 1.6% to $109 per barrel.

Profits at Samsung’s chip division failed to meet investors’ lofty expectations, even as the company simultaneously raised its capital expenditures in response to continued robust demand for AI infrastructure driving up memory chip prices. However, the company stated it would not announce concrete shareholder return plans until the end of January next year—a sharp contrast to SK Hynix, which unveiled an additional shareholder return plan of approximately $45 billion alongside strong results.

"Deferring shareholder return details until January is disappointing," said Rob Li, managing partner at Amont Partners in New York. "This gives stock traders a reason to rotate into SK Hynix." Shares of SK Hynix rose 4% on the day.

On Alphabet’s side, sales missing expectations led the market to worry that Google is being caught up to in the AI race. "Market expectations were already very high; to some extent, merely meeting estimates is not enough. Unless companies can show earnings growth exceeding those high expectations, shares may drop when earnings are released," said Wataru Akiyama, strategist at Nomura Securities.

This earnings season is not all bad news. Microsoft’s stock rose 2.9% after hours, driven by solid cloud business growth; Oracle, meanwhile, soared 11% after issuing its long-term free cash flow outlook, with its credit risk metrics improving by the largest margin in nearly nine months.

Weakness in technology stocks prompted flows into U.S. Treasuries. After the Federal Reserve held rates steady on Wednesday, short-term Treasuries rose for a second straight day, with the yield on the rate-sensitive two-year note falling 2 basis points to 4.68% and the 10-year yield also declining 2 basis points to 5%. Gold edged lower by 0.7% to around $4,040 per ounce; bitcoin fell 1.5% to around $80,000—both retracing in tandem, further underscoring Treasuries' renewed safe-haven status in the market.

"The market is responding to the cautious messages from Fed Chair Kevin Warsh, which may be associated with perceived over-optimism in the AI sector," said Eugene Leow from DBS Bank Singapore. "Demand for safe assets and expectations of a potential slowdown in AI activity are exerting downward pressure on yields."

On the macro front, the market faces several tests this week. The Fed decided by a 10-to-2 vote to keep rates unchanged, with Chair Kevin Warsh saying at a press conference that monetary policy is not yet conclusive. On Thursday, the Fed’s preferred inflation gauge—the core Personal Consumption Expenditures (PCE) data—will provide fresh clues on price trends.

The European Central Bank and the Bank of Japan will each announce rate decisions on Thursday and Friday, respectively, and are both expected to keep rates unchanged. "The ECB is not expected to change policy, but will likely emphasize its toolkit for managing eurozone sovereign debt risks and countering systemic economic threats, to calm markets," Peter Dragicevich, APAC currency strategist at CorPay, wrote in a research note.

In addition, oil prices fell as Middle East diplomatic mediation progressed, with global benchmark Brent crude slipping 1.6% to $109 per barrel.