A rout in semiconductor stocks that began on Wall Street swept through Asia and returned to US pre-market trading Tuesday, with TSMC falling more than 4% as investors question whether the artificial intelligence buildout can justify the valuations attached to it.
A rout in semiconductor stocks that began on Wall Street swept through Asia and returned to US pre-market trading Tuesday, with TSMC falling more than 4% as investors question whether the artificial intelligence buildout can justify the valuations attached to it.
The selloff erased more than $400 billion in combined market value across Asian chip stocks overnight, with SK Hynix plunging 14.65% and Samsung losing more than 13%, before hitting US pre-market where TSMC dropped over 4%.
"The AI spending debate that Alphabet started last week has gone global," said James Hyerczyk, a US-based technical analyst with over 40 years of market experience. "Amazon, Meta, Microsoft and Apple reporting later this week are the only thing that can stop it."
The damage cascaded through every link in the semiconductor supply chain. Memory makers SK Hynix and Samsung — two of the largest suppliers of high-bandwidth memory for AI servers — suffered their steepest single-day drops in years, dragging South Korea's Kospi down 10.84% before trading was halted. Tokyo Electron fell nearly 11%, Kioxia dropped more than 18%, and ASML lost more than 8% Monday. In US pre-market, Micron slid more than 4%, AMD and Marvell each fell about 3%, and Nvidia traded roughly 1.2% lower.
The selloff reflects a single question: can the hyperscalers' AI spending convert into revenue, margins and cash flow? Amazon, Meta, Microsoft and Apple all report earnings this week, and their guidance will determine whether the chip rout becomes a deeper correction or resets before the next leg higher. The Federal Reserve's two-day policy meeting, which began Tuesday, adds another layer — Chair Kevin Warsh's press conference Wednesday could reinforce headwinds for the highest-valuation names if it keeps September tightening expectations alive.
The breadth of the selloff distinguishes it from earlier AI corrections. Investors are not targeting a single company or sub-sector — they are selling the entire chain. SK Hynix and Samsung supply the high-bandwidth memory that goes into Nvidia's AI servers. Micron competes in the same market. ASML, Tokyo Electron and Advantest build the lithography and test equipment that makes the chips possible. When the memory makers drop 13% to 14% in a single session, every link in the chain feels it.
Reports that China is making progress in memory chips and immersion deep-ultraviolet lithography equipment are adding another layer of pressure. ASML fell more than 8% Monday, and the concern is not just about near-term earnings anymore — it is about whether the competitive market is shifting underneath the valuation the market already paid.
The Divergence Between the Dow and the Nasdaq
The selling is concentrated in growth and technology. The Dow Jones Industrial Average edged higher for a third session Tuesday, with futures up about 86 points, after successfully testing its 50-day moving average at 51,895. Financials and industrials are not part of this trade. The Nasdaq is carrying all the weight because semiconductors remain the center of the growth story.
The Nasdaq-100 broke below the June 9 bottom at 28,512 in Monday's session, and momentum is pointed toward the long-term retracement zone at 27,142.25 to 26,208.25. Inside that area sits the 200-day moving average at 26,967.23, which some traders may view as a value zone. The S&P 500 is holding above its July 23 bottom at 7,411.75, but a break below that level opens a path toward its own 200-day moving average at 7,128.53.
What Earnings Need to Deliver
The hyperscalers' capital expenditure plans are the fulcrum. If Amazon, Meta and Microsoft keep raising capex without showing a clearer path to revenue conversion, semiconductor sellers stay aggressive. If management can demonstrate that AI spending is translating into demand, margins and cash flow, the group could stabilize quickly.
For TSMC specifically, the stakes are high. As the sole manufacturer of Nvidia's most advanced AI processors and a key supplier for AMD and Apple, the foundry giant is the closest proxy for AI chip demand. Its pre-market drop of more than 4% signals that investors are pricing in the risk of a demand slowdown before any earnings miss has been reported.
Lower oil and easing bond yields have not helped. Brent crude is below $90 a barrel and the 10-year Treasury yield has eased toward 4.65%, but chip stocks are still falling because this is not about rates or inflation right now. It is about whether the AI buildout can support the valuations attached to it.
Nvidia shares trade at roughly 35 times forward earnings. If this week's earnings from the hyperscalers fail to reassure investors, that multiple could compress further. If the reports show AI spending converting into revenue, the selloff may prove to be a buying opportunity. Either way, the next 72 hours will define the trajectory for semiconductor stocks into the second half of the year.
This article is for informational purposes only and does not constitute investment advice.
