A global selloff in semiconductor stocks intensified on Tuesday as investor anxiety over the sustainability of the artificial intelligence boom deepened, with South Korea's benchmark Kospi index plunging as much as 9.6%, triggering a 20-minute trading halt on the Korea Exchange.
Memory chip giants Samsung Electronics and SK Hynix both saw their shares fall at least 11%. Japan's tech-heavy Nikkei 225 index and Taiwan's Taiex index each dropped more than 4%. The decline reflects growing worries about overcrowded stock positions in the AI build-out cycle and rising corporate debt levels.
A new round of transactions linked to NVIDIA (NASDAQ: NVDA), valued at over $750 billion, has further stoked concerns that demand for AI is being artificially inflated. Meanwhile, progress made by Chinese competitors in the technology space has added extra pressure to an already expensive market.
Where to focus first
Vey-Sern Ling, managing director at Union Bancaire Privée in Switzerland, observed: "Greed has turned into fear for AI-related semiconductor stocks." He added: "Investors are now interpreting every piece of news negatively and using it as a reason to sell, rather than carefully analyzing the real impact of those messages on business fundamentals."
Intensifying competition from China pressures chipmakers
This week, heightened competitive pressure from China weighed on chipmaker stocks. ChangXin Memory Technologies (CXMT) listed on Monday, and its initial public offering will help fund the company's capacity expansion plans. Additionally, reports that a Chinese firm has begun mass-producing immersion deep ultraviolet lithography machines introduced a new source of concern for the market.
Hiroshi Namioka, chief strategist at T&D Asset Management, noted that China's efforts to improve its advanced chip production capabilities are a negative factor for Japanese chip manufacturers. Shares of semiconductor equipment makers, including Nikon and Tokyo Electron, each fell more than 9% on Tuesday.
In contrast, shares of semiconductor equipment companies listed in mainland China, such as Advanced Micro-Fabrication Equipment Inc. (SHA: 688012) and Kingsemi Co., Ltd. (SHA: 688037), rose. The broader stock decline suggests that market confidence is waning at the start of a critical week for earnings reports from major global tech companies.
Future capital expenditure plans from companies like Meta Platforms (NASDAQ: META) and Amazon (NASDAQ: AMZN) will be a key factor in determining the market's next direction.
Hebe Chen, senior market analyst at Vantage Global Prime, commented: "The recent selloff in chip stocks shows that market doubts about spending, return on investment, and valuations are deepening, not fading." She added: "With several important catalysts approaching, investors are reluctant to buy the dip, indicating they are waiting for stronger evidence before re-entering the market."
Why just memory chip stocks are leading the decline
Memory chip stocks have played a significant role in the AI trading boom this year, with soaring chip prices pushing their profits to record levels. However, as doubts about the long-term outlook increase, the substantial gains accumulated by these stocks are being rapidly reversed.
Kioxia fell as much as 18% on Tuesday, further giving back its earlier gains. Last month, the company's stock briefly soared, making it one of the most valuable companies in Japan by market capitalization. Since SK Hynix shares hit an all-time high in June, the company's market value has shrunk by approximately $570 billion.
Comments from Samsung Electronics and SK Hynix when they report their earnings this week may provide more clues for investors who have endured significant volatility. However, the market now appears less easily impressed by record profit levels.
Dilin Wu, research strategist at Pepperstone Group Ltd., noted: "The market's standards are currently extremely high." He added: "Beating expectations is no longer a guarantee of a stock price increase—we have seen this repeatedly in recent weeks. Therefore, some of today's market moves may be traders cutting their positions before earnings reports, rather than waiting for the results to be announced."
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