Global Chip Stocks Tumble as AI Spending Jitters Hit US and Asia Markets

A wave of selling swept across international semiconductor markets as investors reassessed the sustainability of the artificial intelligence boom. The downturn struck major hardware producers in the United States and Asia as a sell-off in artificial intelligence-related stocks deepened, triggering circuit breakers and reversing months of explosive gains.

South Korean Markets Hit Hard by Profit-Taking and Circuit Breakers

Trading on South Korea’s benchmark Kospi index ground to a temporary halt on Tuesday morning after sliding by 8%. When the 20-minute halt lifted, the index dropped further to trade around 10% lower. The tech-heavy market has faced extraordinary volatility, triggering circuit breakers eight times this year alone.

The index had more than doubled from the start of the year to mid-June but has since lost around a third of its value. In recent months, stock market trading has been particularly volatile in South Korea as it has attracted large numbers of retail investors. The slump was led by technology firms, with Samsung Electronics and SK Hynix both falling by about 12% in some sessions, while the broader Kospi of Seul lost 7.9% to 6.221,81 points as Asian stocks declined on Tuesday with South Korea leading losses after Samsung Electronics’ forecast triggered a reassessment of stretched valuations tied to the AI trade.

The sell-off arrived despite stellar preliminary financial results from the country’s dominant memory producers. Samsung Electronics, the world’s largest memory chipmaker, estimated April-June operating profit at 89.4 trillion won (€51.22 billion), or a preliminary operating profit of about $58 billion for the April–June quarter, marking a 19-fold jump from a year ago and a third straight quarter of record operating profit. Still, South Korean shares slumped 8 per cent, triggering circuit breakers as Samsung Electronics lost 9.8 per cent, reflecting concerns over the durability of the AI-driven chip boom. Yet the historic figures failed to satisfy lofty market expectations.

Samsung shares plunged as much as 10% in Seoul, while SK Hynix dropped 7.5%, failing to gain traction even after a planned U.S. listing that saw the firm make its debut on the Nasdaq on July 9. On Monday, US-listed shares in SK Hynix fell by 7.5% to well below the $149 (£112.11) offer price when it made a record-breaking debut on the Nasdaq on 9 July. SK Hynix’s Seoul-listed shares tumbled over 15% following its historic U.S. trading debut on Friday, with New York-traded depository receipts down around 9%.

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Global Semiconductor Supply Chain Feels the Shockwaves

The shockwaves quickly extended beyond the Korean peninsula. In the United States, Nvidia fell 5% in New York on Monday, meaning it lost its position as the world’s most valuable listed company to Apple after the Wall Street Journal reported that it is in talks to provide around $250bn for OpenAI in a massive data-center project. Additional pressure hit U.S. memory makers as Sandisk slid 6.8% and Micron Technology lost 5.3% in premarket trade, while Intel dropped 2.8% and memory chip giant Micron sank more than 4%, with Sandisk and Western Digital also falling more than 7%.

The AI jitter rippled across Asian markets, with MSCI’ broadest index of Asia-Pacific shares outside Japan falling 2.6 per cent and chipmaker-heavy Taiwan down 1.8 per cent. Japan’s Nikkei shed 2.4 per cent, and Japan’s Nikkei 225, which is also dominated by tech companies, was almost 3.8% lower on Tuesday morning, ceding 4.1% to 62.248,78 points.

European semiconductor equipment suppliers also felt the downturn. European chip stocks pared some losses as the morning progressed, but remained sharply lower. Chip makers Infineon Technologies and STMicroelectronics were down 1.6% and 1%, respectively, while Dutch suppliers to semiconductor makers also dropped. ASML, which makes semiconductor-printing machines and is the most valuable company in Europe, fell 1.3%. BE Semiconductor was down 2.1%. Market analysts pointed to stretched valuations and the psychological burden of a sector accustomed to cyclical extremes attempting to price in permanent growth.

Analysts Debate Valuation Sustainability Versus Long-Term Demand

The recent sharp rally in AI-related shares has likely been driven by concerns over the economy and inflation, with worries about the outlook — including worsening tensions involving Iran — prompting investors to seek refuge in the sector, said Toru Suehiro, chief economist at Daiwa Securities.

Attention now shifts to upcoming earnings reports to determine whether demand for advanced hardware can justify the sector’s immense capital expenditure.