Japan's Nikkei 225 index futures tumbled nearly 4% on Friday.
Japanese memory chip manufacturer Kioxia Holdings Corp. has seen its market value cut in half in the month since it became the country's most valuable firm, as worries mount that the AI-fueled surge in the sector has been overdone.
Shares in Kioxia plunged as much as 16% during Friday morning trading in Tokyo, marking a 52% decline from last month's peak and erasing at least ¥30 trillion ($185 billion) in value. In mid-June, Kioxia surpassed automotive leader Toyota Motor Corp. in market capitalization after its stock skyrocketed over 600% from the year's start, fueled by excitement over memory and data storage demand during the AI boom. Its standing has now fallen to become Japan's fourth-largest company by market cap.
"The semiconductor industry is susceptible to the silicon cycle, and we have witnessed this trend repeatedly," stated Yugo Tsuboi, chief strategist at Daiwa Securities. He added that Chinese memory chip producers are attracting notice, leading to a belief that the global increase in memory prices could begin to stabilize. "It has grown more difficult to continue pricing in additional acceleration in earnings growth, and short-term traders have likely hurried to secure profits for the time being."
Investors are examining global chip companies more intensely, questioning whether the returns from enormous AI expenditures can support high valuations. An index tracking major chip stocks fell over 4% in the U.S. on Thursday, with worries about Taiwan Semiconductor Manufacturing Co.'s AI investments clouding its robust outlook.
In recent months, traders have grown more skeptical of AI, shifting funds away from technology-related stocks and into sectors that have underperformed.
Analysts continue to hold a positive outlook for Kioxia, predicting a potential return of approximately 118% over the coming year. Furthermore, the Topix index's rebalancing in October is anticipated to generate significant passive fund inflows.
However, leveraged positions held by Japanese retail investors in Kioxia leave the stock vulnerable to additional downside risks if selling pressure intensifies. The departure of shareholder Bain Capital was interpreted by some investors as an indication that the semiconductor cycle and the stock's rally might be approaching a peak.
For years, Kioxia struggled through one of the memory-chip industry's most severe downturns. Yet, since its 2024 listing, Kioxia's shares have soared on explosive demand for AI memory chips, ranking it as the top-performing stock on the MSCI World Index.
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