STOCK markets are tumbling in Asia amid an AI-sell off as investors dump some of the industry’s biggest chip stocks.
The South Korean Kospi dropped more than 10% on Monday while Japan’s Nikkei fell by more than 4% as shares in AI chip companies declined.
Shares in SK Hynix and Samsung Electronics fell by more than 10% and AI companies also took a hit in America with Nvidia’s price dropping 5% while SK’s US-listed shares falling 7%.
Investors are growing increasingly wary of the huge amount of borrowing among AI companies while prices for credit default swaps, a way of betting against corporate debt, linked to companies such as Oracle, SpaceX and Alphabet have hit record hights in recent days.
Jitters appeared to have been triggered by the “blockbuster” debut of ChangXin Memory Technologies (CXMT) on the Shanghai STAR Market, according to Susannah Streeter, chief investment strategist at Wealth Club.
She said: “The AI powered rollercoaster has taken another lurch downwards, with chip stocks falling sharply, as investors reassess rising competition and future demand.
“Just as geopolitical tensions appear to be easing slightly, there’s been a refocus on the runners and riders of the tech revolution, with a new kid on the chip block causing mayhem.”
Streeter added: “Wavering sentiment towards semiconductor manufacturer stocks, which have hit eye-watering valuations and skewed the performance of indices, prompted the falls.
“SK Hynix and Samsung both were down more than 12% at one point, with trading halted on the Kospi amid the frenzied sell-off. The trigger appears to have been the blockbuster debut of ChangXin Memory Technologies (CXMT) on the Shanghai STAR Market, causing frissons of worry about just how quickly the Chinese memory maker will aggressively expand production.
“It’s the fourth-largest producer of DRAM and threatens to knock market leaders SK Hynix and Samsung off their perches.
“DRAM is the dynamic fast-working memory used in everyday items from smartphones and computers, but crucially also for AI accelerators, microprocessors designed to execute AI workloads at lightning speed.
“Investors had allocated significant chunks of portfolios to the South Korean chip makers and are rotating out to free up capital in expectation there will be more chip opportunities coming out of China and its ambitious AI strategy, with more expected to flow through the IPO pipeline.”
Jing Jie Yu, an equity analyst at Morningstar, said that the reaction may have been overblown, according to The Guardian.
He said: “We believe the market was likely spooked by the progress of China’s chipmaking equipment capabilities, and was worried that this progress would threaten the competitive position of global chipmaking and chip equipment leaders.
“That said, we believe the sell-off today is largely a knee-jerk reaction and overdone.”
