Deconstructing the wildest stock market of 2025: AI, storage, and defense drive South Korea's Kospi index up over 76%

The unparalleled "renaissance boom" of the South Korean stock market in 2025 can be described as a milestone in the global financial market history, with the country's stock market advancing towards its strongest growth in 25 years. In 2025, the "crushing" growth of storage chip giants and defense exporters, as well as the astounding surge of AI and K-Beauty concept stocks, have provided South Korean investors and foreign investors focusing on South Korea with incredibly strong investment returns in a stock market that continues to set new historical highs. The strong growth contributed by these hot sectors has propelled the benchmark stock index of the South Korean stock market - the Kospi Index - to rise by over 76% year-to-date, making it the best performing major stock index in the world in 2025. The two storage chip giants with a weight of 30% in the South Korean stock market's benchmark stock index - Samsung Electronics and SK Hynix - contributed nearly half of the gains. Meanwhile, South Korean defense and nuclear energy companies also contributed significantly to the growth. Furthermore, Wall Street analysts believe that the South Korean stock market still has strong upside potential in the future. Top brokerage firms on Wall Street, including Citigroup, JPMorgan Chase, and Nomura, predict that the South Korean benchmark stock index will rise by at least 20% next year. Analysts also note that increased stimulus measures by the South Korean government, coupled with strong profit growth, are expected to continue to support the upward trajectory of the South Korean stock market in this "bull market". As shown in the chart above, the "K-Rally" of the South Korean stock market has swept globally - the Kospi Index of the South Korean stock market has continued to rise at a staggering pace. South Korean President Lee Jae-myung even predicted recently that the South Korean stock market will soon break through the 5,000-point mark. As of the close on Monday, the South Korean Kospi Index closed at 4,220 points. If the strong upward momentum continues in early trading on Tuesday, the South Korean stock market will set a new historical high. Here is a review of the winners and losers in the South Korean stock market in 2025. AI Investment Theme In the South Korean stock market, the biggest winners in the artificial intelligence investment theme trades are not traditional chip manufacturers or large storage chip companies like Samsung, but rather those "industrial stock targets with AI labels". These include South Korean power transformer manufacturer LS Industrial Systems, and nuclear power supplier Doosan Enerbility. According to price statistics from the Korea Exchange, both companies' stock prices have risen by over 330% year-to-date. Despite the high valuations, long investors of these two stocks generally believe that there is no quick feasible decarbonization strategy to meet the surge in electricity demand brought about by the increased global deployment of AI data centers, making these power companies even more indispensable. The essence of the global AI competition is the competition in AI computing power infrastructure, and the core foundation driving AI computing clusters is a stable and massive power supply system. It is precisely because of this that the power demand of AI data centers is soaring at an unprecedented rate, with AI now becoming a "power glutton". The exponential expansion of high-energy AI data centers, driven by the demand for AI chips and other computing power infrastructure, cannot be separated from the core foundation of power supply, leading to the emergence of the market viewpoint that "the end of AI is power". In a recent research report, Goldman Sachs raised its forecast for the massive electricity demand driven by global data centers up to 2030. The forecast now predicts a 175% expansion in power consumption compared to 2023 (Goldman Sachs' previous forecast was +165%), equivalent to the addition of the power resource load of a "top ten electricity-consuming country" globally. According to analysts at Goldman Sachs, the end of large AI models lies in power - the firm emphasizes that the "power-swallowing monster" of AI will trigger an unprecedented global power "super-demand cycle" and a "super-bull market" in power stocks. In his first budget speech in November, South Korean President Lee Jae-myung placed artificial intelligence at the core of his government's economic vision, pledging to comprehensively transform the country's core industry chain, public services, and military defense through massive AI investments and policy support, aiming to integrate everything in the country with AI. Lee emphasized that the South Korean government will increase AI investment to over 10.1 trillion Korean won (approximately $7 billion) next year, more than triple the current level, as a significant part of the overall budget proposal of 72.8 trillion won, with the goal of revitalizing South Korea's economic growth, overcoming the decline in the country's population structure, and preparing adequately for the wave of global trade and technological upheaval. An analyst team from Morgan Stanley stated that investors' interest in power grid and AI computing infrastructure stocks is expected to continue throughout 2026. They emphasized that Hyundai Motor Company is entering "a possible decades-long revaluation tide in the modernization of power grids, AI data centers, and decarbonization convergence". Leader in Storage Chips Samsung Electronics and SK Hynix have experienced one of the most outstanding years, consolidating their position as the two largest weighted stocks in the Kospi as well as leading global storage chip manufacturers. Driven by the growth in demand for high-capacity and high-performance storage chips for AI training/inference systems from global tech giants including Microsoft, Google, and Meta, Samsung's stock price has risen by 125% this year, hitting record highs. SK Hynix's stock price has also risen by around 268%, similarly hitting record highs this year. Storage chips are crucial for South Korea's exports and economy. South Korea is home to the world's two largest storage chip manufacturers - SK Hynix and Samsung, with SK Hynix being the primary HBM supplier for Nvidia's AI GPU computing clusters. Another storage giant, Samsung, is one of the world's largest technology companies and the largest supplier of consumer-grade DRAM and NAND storage chips, as well as enterprise-grade NAND storage components. Samsung has also become the supplier of HBM storage systems for Nvidia's flagship AI computing clusters, the GB200/GB300 series. As breakthrough AI tools like AI intelligences penetrate various industries worldwide, bringing enormous "AI inference side computing power demand", it means that the future prospects for AI computing infrastructure construction areas such as AI chips, HBM storage systems, enterprise-grade SSDs, high-performance networks, and power equipment will continue to expand exponentially. Additionally, the surge in consumer-grade DRAM and NAND storage demand driven by the trend of edge-side AI will bring a new wave of growth for these products. A recent industry research report on storage chips by Nomura Securities shows that the current "super cycle" in storage chips, which began in the second half of this year, is expected to last until at least 2027. Nomura has further raised its 12-month target stock price for the two "South Korean storage chip giants", emphasizing that the future upward potential of these giants' stock prices will exceed 40%. In recent months, the strong performance of the world's three major storage chip giants - Samsung Electronics, SK Hynix, and Micron, as well as other storage giants like Western Digital and Seagate - have been highlighted by the release of their incredibly strong performance records. These records have led major financial institutions such as Nomura, JPMorgan Chase, and Morgan Stanley to proclaim that the "storage super cycle" has arrived, underscoring the globally surging demand for AI training/inference computing power and the recovery of consumer electronics demand driven by the edge-side AI trend, driving a exponential expansion of the demand for DRAM/NAND storage products, especially in the HBM storage and high-performance DDR5 server categories. In the South Korean market, the momentum of the strong growth in storage chips has also spilled over to related companies, such as SK Square, the parent company of SK Hynix, as well as Korea Circuit, which sees U.S.-based AI ASIC leader Broadcom as a customer. Both stocks have also risen by over 330% this year. "The shortage of storage chips is without a doubt accelerating, so I expect South Korean semiconductor stocks to continue to have an extremely strong year," said Kang Dajun, Chief Investment Officer of Seoul's Life Asset Management. Defense Industry Star The reshaping of traditional security alliances by former U.S. President Donald Trump has significantly spurred new defense spending in both Europe and Asia this year, prompting investors to re-focus on faster-delivery, lower-deployment cost South Korean contractors. The defense industry stock investment frenzy has swept the global stock market this year, with Citigroup recently releasing a research report stating that the trend of "International Rearmament" is set to become a structural and cross-years global defense demand trend, and predicting that the global stock market defense sector will continue to be a hot investment sector in the next 2-3 years, potentially becoming a core contributing force driving the stock market's rise. The latest statistics show that the defense industry stock investment frenzy has swept the stock market, with U.S. aerospace and defense stocks recording a high growth of 36% year-to-date in 2025, while the same sector in the European stock market has risen by 55% this year, outperforming the core growth-driving sectors of the U.S. stock market - the semiconductor sector which saw a growth of about 45%. This growth is mainly due to Germany and the entire European continent seeking to re-arm Europe after Trump announced a comprehensive focus on U.S. domestic defense construction. In the South Korean stock market, Hanwha Aerospace, the manufacturer of the K9 self-propelled howitzer, has become one of the biggest winners in the South Korean defense industry sector, with its stock price rising by nearly 200% this year. Large shipbuilders such as Hanwha Marine, which have some business in the defense industry, have also seen their stock prices rise by 210%. Must Asset Management stated that with South Korean domestic companies recently breaking through with large orders in Europe, these companies are likely to establish deeper and more extensive partnerships with NATO member countries in the coming years. Leader of the K-Beauty New Generation In less than two years since its IPO on the South Korean stock market, APR Corp.'s market value has surpassed that of traditional South Korean beauty giants Amorepacific Corp. and LG H&H. APR Corp., the manufacturer of the Medicube brand and a leader in home beauty devices, has surged by 369% year-to-date, leading all sectors in the MSCI South Korea Index and topping the entire benchmark index, making it the super dark horse in the South Korean K-Beauty industry. "In my view, APR's outperformance is not just due to better execution, but playing a completely different game," said Jung In Yun, CEO of Singapore's Fibonacci Asset Management Global. "It sells products through social-first channels that prioritize actual results and user experience, not just through traditional retail channels." LG H&H, the owner of "The Whoo" skincare brand, has seen its stock price decline for the fifth consecutive year, Amorepacific Corp.'s stock price has risen by 14% this year. Investors generally expect APR to continue outperforming the benchmark beauty sector and the entire South Korean stock market index, but its high valuation also makes the stock more susceptible to significant fluctuations in case of setbacks. Losing Game While the overall market in South Korea has seen gains, South Korean gaming developers have seen their stock prices significantly lag behind the market. Krafton's market value has shrunk by about one-fifth, while Com2uS has fallen by over one-third. Concerns about their limited overall attractiveness in the Asian market and their inability to compete aggressively with Chinese rivals have forced investors to look elsewhere. Investment managers from Life Asset stated that, as demand for South Korean role-playing games is limited in Asia, there remains limited upward potential for these stocks in the future. Other significant losers in the South Korean stock market in 2025 include many South Korean companies in the electric vehicle industry chain that have been severely impacted by the sharp drop in global demand for electric vehicles. One of the biggest losers is South Korea's Enchem, whose stock price has fallen by about 50% year-to-date. SK Innovation, as one of South Korea's three major battery suppliers, is also expected to end the year with a slight decline in stock price. In conclusion, the South Korean stock market in 2025 has seen remarkable success stories in various sectors, from storage chips to defense to beauty, while also witnessing challenges in areas such as gaming and electric vehicles. The outlook for the future remains positive for sectors such as AI, storage chips, and defense, while companies in struggling sectors will need to adapt to changing market conditions to remain competitive in the global marketplace.