By Sherry Qin

South Korea's equity market tumbled briefly into bear-market territory, leading Asian stock markets lower as the chip-led artificial intelligence rally took a breather.

The Korean stock market, which ranks among the world's best performing this year, was hit by profit-taking among heavily-weighted chip-makers. These stocks have rocketed thanks to the insatiable demand for chips related to artificial intelligence boom.

Samsung Electronics and SK Hynix, which together account for more than half of the Kospi's market capitalization, tumbled 6.9% and 6.1%, respectively.

Those losses came even though Samsung before the open projected a 19-fold surge in its second-quarter operating profit, signaling that its record AI-driven earnings streak will continue.

Samsung's shares have rallied almost 150% so far this year. For it to extend its gains, investors "need confident guidance, durable pricing power and proof that AI demand is still accelerating," said Saxo Markets chief investment strategist Charu Chanana in a note. The key question is "whether today's memory bottleneck becomes tomorrow's overcapacity risk," she said.

Seoul's Kospi index tumbled from the open and at one point lost as much as 8.2%, briefly putting it into a bear market, defined as a 20% drop from its recent high.

Analysts noted that Korean stocks' latest wobble should be viewed in the context of its historic rally. Some investors appear to be cashing in their gains after the Kospi's roughly 100% surge in the first half of the year.

"Investors are not walking away from the AI story, but they are asking whether a sector priced for perfection can keep delivering perfection into earnings season," Tickmill Group analyst Patrick Munnelly said.

Japan's Nikkei Stock Average, another beneficiary of the AI trade, ended 2.1% lower as Tokyo Electron shed 3.9% and Kioxia Holdings dived 11%.

Hong Kong's Hang Seng Index dropped 0.6% while China's Shanghai Composite Index lost 1.2%.

Oil prices were higher in wake of news that Iran's Islamic Revolutionary Guard Corps had fired missiles at two commercial ships near the Strait of Hormuz early Tuesday, according to a senior U.S. official.

Although the attack would complicate negotiations to end the U.S.-Iran conflict, its impact was limited as Saudi Arabia has sharply cut the price of its flagship crude grade for Asian buyers, selling it at a discount for the first time in years as Gulf supplies return to global markets.

ANZ analysts reckon that despite the recent surge in activity in the Strait, the recovery in oil flows is proving to be slower than expected as shipping operators remain cautious, limiting the speed at which crude exports can return to normal levels.

Front-month WTI crude oil futures were 1.0% higher at $69.24 a barrel, while Brent crude oil futures also gained 1.1% at $72.78 a barrel.

Write to Sherry Qin at sherry.qin@wsj.com