AI Chip Stocks Plunge Amid Investor Jitters

Major chip manufacturers experienced substantial share price reductions across Asian and US markets, as investor apprehension regarding artificial intelligence (AI) related expenditures intensified. South Korea's benchmark Kospi index was temporarily suspended on Tuesday morning after an initial 8% slide. Following the lifting of a 20-minute trading halt, the index continued to fall, ultimately closing 10.8% lower. Technology firms spearheaded this downturn, with both Samsung Electronics and SK Hynix recording losses exceeding 13%.

Market Volatility and Shifting Valuations

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This market movement occurred after AI chip leader Nvidia saw its shares decrease by 5% in New York on Monday. This decline resulted in Apple surpassing Nvidia to become the world's most valuable listed company. The Kospi index, heavily weighted towards technology stocks, has now experienced multiple circuit breaker halts this year, a mechanism designed to mitigate panic selling. Despite having more than doubled in value from the start of the year to mid-June, the index has since relinquished approximately one-third of its gains. Recent months have been characterised by considerable volatility in South Korean stock trading, attracting a large number of retail investors.

Jane Sydenham, investment director at Rathbones, attributed the slump in Asian markets to the preceding "phenomenal rises" over recent months. She noted that the Korean market's concentrated investment in companies like Samsung and SK Hynix amplified the impact of the correction. Sydenham also pointed out that many Korean investors use debt to finance stock purchases, which exaggerates market movements during downturns. The sell-off was reportedly triggered by concerns over Nvidia's potential discussions to invest around $250 billion in OpenAI for a significant data-centre project, as reported by the Wall Street Journal.

“Is it going to earn a proper return in the future? That's what investors are worried about.”

Jane Sydenham, investment director at Rathbones

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Cheng Chye Hsern, head of investments at Providend, highlighted Apple's position as a company not heavily involved in the AI race, making it attractive to investors concerned about the substantial sums rivals are investing in data centres. Sydenham added that the level of AI spending among tech firms has been a source of investor anxiety for some time, with questions arising about future returns. Jun Bei Liu, founder of Ten Cap, also indicated concerns about increasing competition from China as a factor contributing to investors taking profits, though she anticipates reinvestment after the US holiday season.

Chinese Chipmaker's Strong Debut

In contrast to the broader market declines, shares in China's ChangXin Memory Technologies (CXMT), a prominent memory chip manufacturer, surged by nearly 470% upon their debut on the Shanghai stock exchange. The company stated its intention to allocate the majority of the initial public offering proceeds towards enhancing production capabilities and expanding research and development efforts. CXMT produces dynamic random-access memory (Dram) chips essential for AI data centres, mobile devices, personal computers, and tablets.

European stock markets, including the UK's FTSE 100, France's Cac 40, and Germany's Dax 40, largely disregarded the AI spending concerns. These markets, having less direct exposure to AI-related investments, showed modest gains of around 0.6% shortly after trading commenced on Tuesday.