AI Chip Stocks Tumble, Dragging South Korean Markets to Three-Month Low

A sharp sell-off in artificial intelligence stocks accelerated this week, pushing South Korea's benchmark Kospi index to its weakest level since mid-April. Investors unloaded semiconductor shares on Tuesday, driven by mounting concerns over the heavy debt load AI companies are taking on to fund massive data center expansions.

South Korean chip giants SK Hynix and Samsung Electronics each dropped more than 10%, weighing heavily on the broader market. Analysts pointed to renewed anxiety about AI investment spending and growing competition from cheaper Chinese alternatives. A report that China has started mass-producing its own deep ultraviolet (DUV) lithography tools added to the unease, with some fearing it could threaten the global leadership of established chipmakers. "The market was likely spooked by China's progress in chip-making equipment," said Morningstar equity analyst Jing Jie Yu. "But we see this largely as a kneejerk reaction that's overdone."

Adding to the turbulence, news emerged that Nvidia is in talks with OpenAI about financing a $250 billion data center project in Ohio, according to the Wall Street Journal. While Nvidia's backing could lower borrowing costs for the venture, the report sent Nvidia shares down 5% Monday and pushed its credit default swaps higher. "The reaction was swift, and Nvidia closed below $200 per share," noted Ipek Ozkardeskaya of Swissquote. "The spike in its CDS suggests it may not yet be the time to buy the dip." Investors are also wary of the circular funding structure in the AI sector, where companies finance one another, raising questions about long-term sustainability.

Source: The Guardian