- Share via
A sell-off in semiconductor stocks deepened as signs of progress in China’s advanced chipmaking compounded worries about the sustainability of the artificial intelligence spending boom.
The technology-heavy Nasdaq 100 has been falling, putting the index on track to enter a correction after falling 10% from its last record. The Philadelphia Semiconductor Index retreated for a fourth straight session in its longest losing streak this year.
The MSCI World Semiconductor index has plunged more than 15% this month to track its worst performance since 2022, although it remains about 28% higher for the year.
“When one trade becomes this crowded, investors don’t wait for bad news; they simply need a reason to take profits,” said Violeta Todorova, a senior research analyst at Leverage Shares. “After an extraordinary rally, expectations had become almost flawless. When valuations leave no room for disappointment, even small changes in sentiment can trigger deep corrections.”
Shares in chip and memory stocks slid on Tuesday, with Intel Corp., Advanced Micro Devices Inc., Sandisk Corp., Western Digital Corp. and Seagate Technology Holdings falling.
South Korea’s Kospi sank 11%, with memory giants Samsung Electronics Co. and SK Hynix Inc. each sliding more than 14%.
European semiconductor-related stocks also underperformed, although to a lesser degree. Infineon Technologies AG and STMicroelectronics NV fell 6.9% and 4.7%, respectively.
ASML Holding NV dropped 3.4%, extending a pullback from Monday triggered by a report that a Chinese state-backed company had begun mass-producing immersion deep ultraviolet lithography machines for chipmaking.
The news has raised further questions about whether hundreds of billions of dollars being spent on AI development would be worth the payoff. Investors are also jittery about high valuations for global semiconductor stocks. Moreover, Nvidia Corp.’s $750 billion in infrastructure deals have added to concerns over AI-related debt levels.
Fears of so-called “circular” deals are on the rise, as AI investments are increasingly becoming an interconnected web of dependencies between technology manufacturers and AI startups. That can magnify losses if demand for AI fails to match lofty expectations.
“Doubts over spending, returns and valuations are still deepening rather than fading,” said Hebe Chen, a senior market analyst for Vantage Global Prime. “The hesitation to buy the dip suggests investors are waiting for stronger proof before rebuilding exposure.”
Asia’s regional benchmark MSCI AC Asia Pacific Index was also poised to enter a technical correction as investors dumped many of this year’s biggest AI winners. Japan’s chip-heavy Nikkei 225 and Taiwan’s Taiex dropped about 4%.
The losses underscore how quickly sentiment has turned on one of the market’s most crowded trades. The cost of protecting Nvidia’s debt against default surged by a record on Monday. That signals “the credit market noticing something the equity market hasn’t fully priced,” said Dilin Wu, a research strategist at Pepperstone Group Ltd. Nvidia shares fell 0.9% on Tuesday.
Growing threats of competition from China have weighed on chipmakers this week. CXMT Corp. completed an initial public offering that will help fund its plans to expand production of memory chips, which may drive down global prices.
Investors now face a crucial week of earnings reports from major tech companies. Plans for expenditures by the likes of Meta Platforms Inc. and Amazon.com Inc. will hold sway over which way stocks move from here.
Daniel Murray, deputy chief investment officer at EFG Asset Management, said the market pullback is indicative of investors “repricing the sector than anything more fundamental” as demand trends at some of the biggest U.S. spenders remain strong.
Still, positioning risks are rising as bullish bets on Nasdaq 100 futures remain largely loss-making, according to data from Citigroup Inc. Exposure to South Korea’s Kospi index is also “fragile” as existing long positions remain deeply in loss, strategist David Chew said.
Lee, Hsu, Jaisinghani and French write for Bloomberg.