South Korea's KOSPI Is Trading Like a Meme Stock, and the S&P 500 or Nasdaq Composite May Be Next

For much of the last four years, the evolution of artificial intelligence (AI) has been the talk of Wall Street. Shares of companies critical to the AI hardware infrastructure build-out have skyrocketed, lifting the Dow Jones Industrial Average (DJINDICES: ^DJI), S&P 500 (SNPINDEX: ^GSPC), and Nasdaq Composite (NASDAQINDEX: ^IXIC) to all-time highs.

But the AI revolution has also unearthed levels of volatility and risk-taking that haven't been regularly witnessed since the dot-com bubble more than a quarter-century ago. South Korea's KOSPI Composite Index, comprised of more than 880 companies, has been bouncing around like a meme stock over the last two months.

Image source: Getty Images.

From the beginning of June through early trading on July 23, the KOSPI has gained or lost between 2% and 10% in 25 of 37 trading sessions. Although the total market capitalization of Korea's stock market is substantially smaller than that of the U.S., the dynamics that we're witnessing in the KOSPI foreshadow possible meme-like movements in the S&P 500 and/or Nasdaq Composite.

Global indexes shouldn't trade like meme stocks

Two factors are primarily responsible for whipsawing Korea's stock market over the last few months: concentration and leveraged exchange-traded funds (ETFs).

As a whole, Korean investors have a lot to smile about. The KOSPI is up 121% over the last year and 67% year-to-date. But a substantial portion of these gains rests with just two components: Samsung Electronics (OTC: SSNLF)(KOSE: A005935) and SK Hynix (NASDAQ: SKHY)(KOSE: A000660).

Samsung's and SK Hynix's shares have skyrocketed 248% and 613% over the trailing year, respectively, driven by otherworldly demand for high-bandwidth memory (HBM). HBM is stacked with graphics processing units in AI-accelerated data centers to facilitate high data-transfer rates.

🚨 THIS IS THE MOST VIOLENT STOCK MARKET IN SOUTH KOREA'S HISTORY.

The Korea Exchange has now triggered more than 35 sidecars and 7 circuit breakers in 2026 alone.

In 2008, during the Global Financial Crisis, the entire year saw 26 sidecars total.

South Korea just did that in... pic.twitter.com/czaS3NmcE7

-- The Macro Paper (@macropaperr) July 20, 2026

However, these two trillion-dollar businesses collectively dwarf the KOSPI's more than 800 other components. Samsung and SK Hynix currently account for more than 50% of the KOSPI's market-cap-weighted index. As these two similar stocks ebb and flow, so goes the KOSPI.

Retail investors piling into leveraged ETFs have also played a role in the meme-like movements observed in Korea's stock market.

Analysts at JPMorgan Chase note that the net assets of Korean leveraged ETFs reached approximately $50 billion at the end of June, or four times that of the U.S., relative to market size. Several deleveraging events in recent weeks have contributed to outsize volatility and daily swings of 4% or greater in the KOSPI Composite Index.

If you think the wild vacillations we've been observing in Korea's stock market couldn't happen in the U.S., the data says you're sorely mistaken.

Image source: Getty Images.

Are wild vacillations in the S&P 500 and Nasdaq Composite next?

The KOSPI's volatility has been driven by concentration and leveraged ETFs, which also happen to be glaring issues with the U.S. stock market.

Historically, index investing has been a surefire way for patient, optimistic investors to build their wealth on Wall Street. Both the S&P 500 and Nasdaq Composite have soared over multiple decades. However, the belief that investing in a broad-based index, such as the S&P 500, Nasdaq Composite, or Nasdaq-100, automatically means an investor is diversified is no longer the case.

The S&P 500 is comprised of 500 of the largest and most influential companies in the world. But the 14-largest components account for almost 45% of the index's weighting. The weighting within the 101-company Nasdaq-100 is even more extreme (Space Exploration Technologies (SpaceX) was recently added without removing a component, thus 101 companies, not 100). The top-10 companies by market cap account for over 67% of its weighting.

Like the KOSPI, this isn't just a concentration problem in a few companies. This weighting is also concentrated in a specific trend: AI-driven businesses. All 10 of the largest companies in the Nasdaq-100 are heavily reliant on AI for future growth. As for the S&P 500, the nine largest companies, and 10 of the top 14 have made AI foundational to their operations.

Stock market bubbles throughout history...

AI stocks now ~40% of the market. pic.twitter.com/RxSAh09k6F

-- Geiger Capital (@Geiger_Capital) May 8, 2026

In other words, the S&P 500 and Nasdaq Composite are now highly concentrated and heavily dependent on the success of the AI revolution.

Additionally, U.S. retail investors have increasingly gravitated to riskier investment vehicles. Leveraged and inverse ETFs made up 31% of all U.S.-listed ETF launches in the first-half of 2026, up from 22% through all of 2025, according to Morningstar. Meanwhile, leveraged ETFs hold about $200 billion in assets under management, providing an estimated $500 billion in notional exposure at 2.5 times leverage.

Furthermore, data from Citadel Securities show that zero-day-to-expiration options now account for 48% of retail investors' options volume -- more than three times the level observed in early 2022. The casino or gambling culture that billionaire Warren Buffett has cautioned about is unequivocally moving markets and heightening volatility.

0DTE (Zero Days to Expiry) Options now account for almost half of all retail options volume 🚨 pic.twitter.com/FDOygBtk11

-- Barchart (@Barchart) July 1, 2026

But what really makes the similarities between the KOSPI and S&P 500/Nasdaq so alarming is the historical precedent of game-changing technologies.

Dating back to the advent and proliferation of the internet in the mid-1990s, every next-big-thing technology has navigated an early innings bubble-bursting event. The reason these bubbles form is that investors constantly overestimate the pace of adoption and/or optimization of new technologies.

In the case of the internet and AI, adoption hasn't been an issue. Businesses welcomed the opportunity to grow their presence online with open arms in the mid-to-late 1990s, just as they're now spending aggressively on AI data center infrastructure.

However, it took until well after the dot-com bubble had burst for companies to optimize their use of the internet to boost their sales and profits. It'll likely be a similar timeline before businesses can optimize AI solutions.

The puzzle pieces for an AI bubble-bursting event are very much in place, with volatility heightened by leveraged ETFs and the outsize concentration in AI stocks in the S&P 500, Nasdaq Composite, and Nasdaq-100. What we're witnessing in the KOSPI may foreshadow what's to come in Wall Street's major stock indexes.

JPMorgan Chase is an advertising partner of Motley Fool Money. Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool has a disclosure policy.