On Tuesday morning, dragged down by concerns related to Nvidia's (NVDA.O) significant AI supply agreements and intensifying market competition, investor sentiment was hit, causing Japanese and Korean stock markets to open lower and extend losses.
As of the time of writing, the Nikkei 225 Index had plunged over 4% intraday, hitting its lowest level since May 22; the TOPIX Index saw its biggest drop of 2.7%. South Korea's KOSPI Index widened its losses to 8%, triggering a trading halt for 20 minutes. The Korea Exchange had also earlier activated the KOSPI sidecar mechanism, temporarily suspending program sell orders on the KOSPI.
Semiconductor and equipment stocks like Tokyo Electron, Kioxia, Samsung Electronics, and SK Hynix led the declines, all falling more than 9%. Among them, SK Hynix's stock price plummeted as much as 30%, marking its biggest single-day drop in history; Kioxia's stock price fell up to 18%, its largest decline since last November. As the global sell-off in semiconductor stocks intensified, investor sentiment regarding the sustainability of the AI boom continued to deteriorate.
Amid a wave of AI-related deals totaling over $750 billion, the cost of debt default insurance for Nvidia surged, triggering a decline in tech stocks. Hideyuki Ishiguro, Chief Strategist at Nomura Asset Management, stated that following reports on Nvidia's significant investment deals, the rise in its credit risk is being viewed by investors as a negative signal.
Additionally, Ishiguro pointed out that China's progress in the semiconductor manufacturing equipment sector poses a threat to Japanese suppliers—who have long held a competitive advantage in this field.
These declines point to deepening concerns in the market regarding crowded stock positioning and rising corporate debt levels as AI infrastructure development advances.
"The recent sell-off in semiconductor stocks seems to be driven more by sharply deteriorating market sentiment than by any immediate change in fundamentals," said Jung In Yun, CEO of Fibonacci Asset Management Global. "Investors are increasingly questioning whether the pace of AI infrastructure spending can be sustained."
Chris Larkin of Morgan Stanley E*Trade said: "This week is packed with potential surprises, both good and bad. Geopolitics and oil prices could be the biggest variables, but an optimistic reaction to strong earnings from the Magnificent Seven is not a given, especially if AI spending levels continue to surprise."
Kyle Rodda, Senior Analyst at Capital.com, wrote in a note to clients: "These companies embody the key themes currently affecting market sentiment—excessive capital expenditure and spending by AI companies, which investors worry will erode returns."
This week, several top tech companies, including Meta Platforms Inc. (META), are set to release key earnings. News earlier this month that Meta planned to sell excess AI computing capacity had already sparked concerns about demand. Apple Inc. (AAPL) has issued warnings about cost pressures, and reports indicate it is lobbying for approval to purchase memory components from competitors.
Investors are also awaiting the full results for Samsung Electronics' June quarter. Kim Minji, a portfolio manager at Seoul's Must Asset Management, said the world's largest traditional memory chipmaker is catching up to SK Hynix in the HBM field.
Furthermore, although SK Hynix is expected to announce another quarter of record-breaking earnings on Wednesday, investor sentiment has clearly weakened. The core market concern is that continuously rising memory prices may force customers to reduce purchases and seek lower-cost alternatives.
Since hitting a historic high in June, SK Hynix's stock price has cumulatively fallen 38%, with market worries about overcrowded trading and leverage amplifying price volatility. In this round of adjustment, the company's market capitalization shrinkage is second only to SpaceX (SPCX) globally.
In just over a month, approximately $470 billion in market value has evaporated from SK Hynix. The South Korean memory chipmaker, once seen as one of the world's hottest AI trades, is now becoming one of the most contentious holdings in investor portfolios.
Shawn Oh, Head of Korea Cash Equities Business at NH Investment & Securities, stated in a research report that, considering the current attractive valuation and the ongoing deleveraging by Korean retail investors, SK Hynix remains "an extremely attractive buying opportunity." However, he also noted that the market is reducing stock positions ahead of the U.S. tech company earnings season.
The market expects SK Hynix's June quarter sales to more than double year-on-year, reaching about $57 billion; operating profit is projected to increase sixfold year-on-year. But James Ooi, a market strategist at Tiger Brokers, said the significance of SK Hynix's earnings may transcend the company itself.
"SK Hynix's performance could also become a sentiment barometer for the global AI hardware sector," he said, adding that market expectations have largely been priced in already, so "even a slight miss could trigger a sharp reaction."
Hebe Chen, Senior Market Analyst at Vantage Global Prime, said: "The recent sell-off in chipmakers shows that doubts about spending, returns, and valuations are deepening, not subsiding. With several major catalysts approaching, the hesitation to buy the dip suggests investors are waiting for stronger evidence before rebuilding risk exposure."
