World stocks fell to a one-month low Tuesday as investors dumped chipmakers across the globe. Two forces drove the selloff: growing concern that China is closing the gap in advanced chip manufacturing, and fresh questions about how AI companies are funding their massive infrastructure buildouts.
The worst damage landed in South Korea. The KOSPI index dropped more than 10% to a three-month low and triggered a circuit breaker on the way down. According to Reuters, the index is heading for its largest monthly decline on record, surpassing losses suffered during the Asian financial crisis in 1997. The KOSPI had more than tripled in value over the 12 months through June, but has shed more than a third of its value since that peak.
Memory chipmakers SK Hynix and Samsung Electronics each fell more than 12%. Both companies have seen their shares rise sharply on AI-linked demand, but that rally is now unwinding rapidly, with leverage in the market adding to the pressure.
The catalyst for Tuesday's move was a report that China had begun manufacturing domestically developed immersion deep ultraviolet lithography machines, a technology previously dominated by Western suppliers. Chinese chipmaker CXMT's strong stock market debut on Monday added to those concerns by signaling that Chinese competitors are gaining ground in the memory chip industry.
Dorian Carrell, head of multi-asset income at Schroders, described the mood in the market. "You've seen the companies paying for AI, the hyperscalers, not really participating because of concerns about the cost and the degree of leverage that needs to be taken on. And now we're seeing questions over the profitability of the semiconductor space, particularly in Asia," he said. He added: "The broader AI story has some way to go, but these kinds of (profit) growth rates are rarely sustained. We think that it's healthy that the market's questioning these things."
The MSCI All Country World Price index fell 0.6% to its lowest level since June 29. In the U.S., futures tracking the Nasdaq 100 dropped more than 1% ahead of Tuesday's open. Nvidia shares had already fallen 5% on Monday after the Wall Street Journal reported the company was in talks to provide roughly $250 billion in financing guarantees for OpenAI as part of a large data center project. Micron Technology also fell in premarket trading.
Some European markets held up better, helped by positive earnings from Unilever and Mercedes-Benz. The broader concern for U.S. markets extended beyond chip stocks. The possibility of a Federal Reserve interest rate hike as early as this week added another layer of pressure on investor sentiment.
Meta Platforms was set to report earnings later in the week, according to MarketWatch, with investors expected to scrutinize the company's AI spending closely following Alphabet's report the week before.
