Korean Stock Market Dips on Google’s TurboQuant Algorithm Announcement

The Korean stock market opened lower on March 26, with the KOSPI index dropping by 1% due to a combined sell-off from foreign and institutional investors. This decline was exacerbated by concerns over reduced memory demand following Google's recent announcement of its TurboQuant algorithm.

At 9:03 AM, the KOSPI was trading at 5,585.46, down 56.75 points (1.01%) from the previous session. By 9:12 AM, it had fallen even more, showing a decrease of 84.48 points (1.50%) to 5,557.73. Foreign and institutional investors sold off shares worth 289.2 billion won and 153 billion won, respectively, dragging the index down, whereas individual investors were net buyers, purchasing 425.8 billion won worth of shares.

Semiconductor giants Samsung Electronics and SK Hynix were particularly affected. Samsung's stock fell by 2.86% to 183,600 won, and SK Hynix saw a sharper decline of 3.62%, trading at 959,000 won. This downward trend reflects a broader concern within the semiconductor sector, which is being influenced by the market's reaction to Google's TurboQuant algorithm announcement.

On March 25, shares of Micron Technology and SanDisk also experienced declines of 3.40% and 3.50%, respectively, on the New York Stock Exchange. The TurboQuant algorithm, introduced by Google on March 24, is a cutting-edge quantization algorithm set that allows for large-scale compression of large language models (LLMs). It has been reported that TurboQuant can reduce the key-value memory size by at least six times without degrading model accuracy, raising fears of decreased demand for memory chips.

Gemma and Mistral, open-source models, demonstrated impressive results using TurboQuant, achieving an 8x performance improvement compared to unquantized keys on NVIDIA H100 GPU accelerators. Google's blog describes this technology's ability to optimally solve memory overhead issues associated with vector quantization.

Analysts are now reassessing the market outlook. Han Ji-young, a researcher at Kiwoom Securities, stated, “The TurboQuant algorithm that Google unveiled has acted negatively on the stock prices of memory companies like Micron and SanDisk.” She noted that the algorithm's ability to process significantly more data with less memory could lead to a reduction of memory demand, which is a concern for investors.

Meanwhile, the KOSDAQ index showed signs of resilience, rising by 0.61% or 7.12 points to 1,166.67. Individual investors were net buyers, purchasing 173.8 billion won worth of stocks, even though foreign and institutional investors sold off 86.2 billion won and 69.7 billion won, respectively. Notably, bio-tech stocks like Samchundang Pharm, Alteogen, and ABL Bio saw gains, with Samchundang Pharm soaring by 19.12% the previous day.

The broader market sentiment was also influenced by developments on the U.S. stock market, where major indices closed higher due to easing geopolitical tensions related to the Middle East. The Dow Jones Industrial Average rose by 0.66%, the S&P 500 increased by 0.54%, and the Nasdaq Composite climbed by 0.77%. This was fueled by news that the U.S. proposed a 15-point ceasefire plan to Iran, which included sanctions relief and the abandonment of its nuclear program. Iran's counter-proposal of five points showed some willingness to engage, which reassured investors.

On the commodities front, international oil prices also fell by 2.2%, alleviating inflation concerns driven by rising energy costs.

Back on the Korean market, Samsung and SK Hynix's declines were compounded by the TurboQuant risk that emerged from the U.S. market. Samsung was seen trading at 189,000 won, down 1.27% earlier, and SK Hynix at 995,000 won, down 2.51%. The algorithm's introduction has led to speculation that the anticipated surge of memory demand due to AI services may not materialize to the extent previously expected.

Analysts remain cautious but view the TurboQuant issue primarily a short-term variable. Han Ji-young commented, “The perception that memory will be less necessary due to TurboQuant has formed negatively, but this is still at the algorithm stage and will take time for actual commercialization.” She added that the current market reaction may also be a response to profit-taking after a rally earlier this year.

Investors are closely monitoring these developments, particularly how TurboQuant's potential impact on memory demand will play out. The market's focus will likely remain on the semiconductor sector, especially with the upcoming earnings reports from major companies.

With the KOSPI's fluctuations and the KOSDAQ's upward trend, the coming days will be telling for the future of the Korean stock market and the semiconductor industry.