AI stock sell-off deepens as investors dump chipmakers in Asia

In short: Shares tied to AI and computer chips fell again, with South Korea leading declines as investors pulled back from chipmakers.

What's going on

Tech stocks dropped on Tuesday, adding to a difficult month for the sector. Investors are increasingly unsure whether today’s huge spending on AI will lead to enough profits later.

South Korea’s Kospi index, which has many technology companies, fell more than 10% and trading was briefly paused. Shares in SK Hynix fell as much as 10%, and Samsung Electronics dropped more than 12%. Both companies are major makers of memory chips, which are like the short-term “workbench” computers use to hold data while they work.

Japan’s Nikkei 225 fell 4.4%. Memory chipmaker Kioxia fell 18% in one day and has dropped almost 50% over the past month. In Europe, ASML, a key supplier of machines used to make chips, was also lower.

Behind the selling are several worries. One is that memory chip prices may rise too much, which could lead customers to buy less, use fewer chips, or switch to cheaper options. Another is that chipmakers are expanding capacity, which can later create oversupply, meaning too many chips and lower prices.

There is also growing concern about competition from Chinese AI companies, which some investors see as a cheaper alternative.

What to watch

Investors are watching upcoming earnings reports from Amazon, Meta, Apple, and SK Hynix for signs that AI spending is paying off. Markets are also watching interest rates, since higher rates can make investors less willing to pay high prices for fast-growing tech stocks.

Source: Financial Times