Asia semiconductor stocks plunge 10% as AI spending fears spread

South Korea's KOSPI crashed 10%, triggering a circuit breaker, as memory-chip giants Samsung Electronics and SK Hynix each tumbled more than 12%, erasing nearly $100 billion in combined market value.

"We seem to be at the despair part of the selloff, where tech investors are rushing for the exit because the Nasdaq says so," Matt Simpson, a senior analyst at StoneX, said. "But right now the KOSPI is setting the tone for sentiment in Asia, and it looks ugly."

The rout swept across the region. Japan's Nikkei 225 slid more than 4% to below 62,000 for the first time since late May, while Taiwan's Taiex dropped 4%. Kioxia Holdings plunged 18.3%, Tokyo Electron fell 11.2%, and MediaTek lost 9.9%. TSMC, which accounts for more than 40% of Taiwan's total market capitalization, fell 2.8%. In the US, Nasdaq futures dropped more than 1% in early trading, suggesting the selloff may extend into the American session.

At stake is the narrative that has powered the $2 trillion semiconductor rally over the past two years: that AI infrastructure spending would sustain exponential demand for advanced chips. That thesis is now under pressure from three directions — Alphabet's disclosure of a free cash flow deficit in the second quarter, a Wall Street Journal report that Nvidia may provide roughly $250 billion as a financial backstop for an OpenAI data center project, and the blockbuster debut of Chinese memory maker ChangXin Memory Technologies, which surged roughly 500% on its Shanghai STAR Market debut to become the mainland's most valuable listed company.

Three cracks in the AI spending thesis

The first crack appeared last week when Alphabet reported a free cash flow deficit in the second quarter, raising questions about whether hyperscalers can sustain the pace of AI infrastructure investment. The second came from a Wall Street Journal report that Nvidia may provide roughly $250 billion as a financial backstop for an OpenAI data center project — a structure that blurs the line between chip supplier and customer. The third is the rise of low-cost Chinese open-source AI models such as Kimi K3, which have raised questions about whether future AI workloads could prove less intensive than expected, reducing demand for advanced AI chips and high-bandwidth memory.

The CXMT listing crystallized a separate but related fear: that Chinese memory chip makers could soon compete directly with Samsung and SK Hynix in the global DRAM market. Reports that Chinese companies are developing domestic deep ultraviolet lithography equipment have reignited concerns that local producers could accelerate capacity expansion, intensifying competition. CXMT's instant $540 billion valuation forced global fund managers to reallocate — "people have to dump more of their existing stocks," said Hao Hong, managing partner at Lotus Asset Management in Hong Kong.

For investors, the selloff tests conviction in the semiconductor cycle. SK Hynix, a key supplier of high-bandwidth memory to Nvidia, saw its US shares close 7.5% lower overnight at $143.02 — the first time below their $149 initial public offering price since debuting this month. Samsung Electronics and SK Hynix together account for nearly half of the KOSPI's weighting, amplifying the index's decline. "Despite stronger-than-expected earnings from Samsung Electronics earlier this month and Alphabet last week, semiconductor shares experienced sharp declines after the results," said Han Ji-young, an analyst at Kiwoom Securities, noting that investors are becoming increasingly cautious ahead of a string of earnings reports due later this week.

This article is for informational purposes only and does not constitute investment advice.