SK Hynix and Samsung Electronics tanked more than 10% on Tuesday as a sell-off in semiconductor stocks deepened across global markets. South Korea's Kospi index fell 11.5%, sliding to its lowest point in three months.
The rout reflects intensifying investor anxiety about the AI sector's financial underpinnings. Two specific concerns are driving the pullback: mounting debt loads at AI companies racing to build massive datacenters, and a surprising shift in China's chip-making capabilities that threatens the dominance of established players.
A recent report by the Information revealed that China has begun mass producing its own deep ultraviolet, or DUV, chip-making equipment, technology previously controlled by Western manufacturers. The news sparked what some analysts describe as panic selling.
"The market was likely spooked by the progress of China's chip-making equipment capabilities, and was worried that this progress would threaten the competitive position of global chip making and chip equipment leaders," said Jing Jie Yu, an equity analyst at Morningstar. He characterized the sell-off as "largely a kneejerk reaction and overdone."
The timing underscores how quickly investor sentiment can flip. Just a day earlier, on Monday, a Chinese memory chip maker called CXMT surged 466% in its Shanghai stock exchange debut, a dramatic show of confidence in Beijing's efforts to build a homegrown AI supply chain independent of American suppliers.
Nvidia also weighed on sentiment. News that the chipmaker was in talks with OpenAI to help finance a $250 billion datacentre project in Ohio spooked the market, suggesting that even AI giants are struggling to fund their expansion ambitions alone. Nvidia fell 5% Monday and dipped below the $200 per share mark. More tellingly, the cost of insuring Nvidia's debt against default spiked, a warning sign that traders are beginning to question the company's creditworthiness even at investment grade.
"The market reaction to the Nvidia news was swift," noted Ipek Ozkardeskaya, a senior analyst at Swissquote. "More importantly, Nvidia's five-year CDS spiked, suggesting that it may not yet be the right time to buy the dip."
The broadening concern is what some call the AI sector's "circular funding" problem, in which major players finance one another in a web of debt and equity swaps. When investors start questioning whether the underlying economics of those deals are sound, entire valuations can unravel quickly.
Author James Rodriguez: "When a sector's financing structure starts to look shaky and geopolitical competition enters the mix, sentiment can flip faster than any fundamentals data point. Tuesday's bloodbath signals that AI exuberance has finally hit its reckoning."
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