Key facts
- Asian stock markets, led by South Korea and Japan, plunged due to fears of Chinese chip competition and AI investment costs.
- South Korea's KOSPI Index fell more than 10% on Tuesday, triggering a trading pause.
- Investors dumped shares of Samsung and SK Hynix, with Samsung stock tumbling 13% and SK Hynix shares listed in Korea plunging nearly 15%.
- US-listed ADRs of SK Hynix dropped 9% shortly after the opening bell in New York.
- The Nasdaq 100 fell nearly 2% as US chip stocks declined.
- Nvidia lost its top spot to Apple amid the broader tech sell-off.
Asian stock markets, particularly chipmakers, experienced a significant downturn on Tuesday, driven by fears of escalating Chinese competition and concerns about the sustainability of the artificial intelligence (AI) trade.
South Korea's benchmark KOSPI Index fell more than 10%, prompting a trading halt. The decline was largely attributed to investors selling off shares of major memory giants Samsung and SK Hynix, which constitute over half of the index's value. Heavy leverage among Korean investors exacerbated the sell-off, leading to margin calls and further forced selling. Samsung's stock dropped 13%, while SK Hynix's Korean-listed shares plummeted nearly 15%. US-listed American Depositary Receipts (ADRs) of SK Hynix also fell 9% shortly after the New York opening bell.
The broader tech sell-off extended to the US, with the Nasdaq 100 index declining by nearly 2%. Nvidia, a key player in the AI chip market, reportedly lost its position as the world's most valuable company to Apple amid the market jitters. Other chipmakers also saw notable declines, including Micron, AMD, Marvell, and Intel.
Analysts are seeking reasons for the volatility, with some pointing to investors taking profits after a substantial run-up in AI-related stocks. Others, like David Morrison of Trade Nation, noted the steep losses in Samsung and SK Hynix, suggesting a "panic" element and nervousness ahead of earnings reports from major cloud providers like Microsoft, Meta, and Amazon. Economist David Rosenberg and JPMorgan's markets intelligence desk highlighted concerns about Chinese competition in the AI race as a primary driver, alongside a rotation towards value stocks and skepticism about recent sector deals.
Joshua Meyers, an executive director at JPMorgan, suggested that investors are broadly seeking reasons to sell tech stocks, implying that the current sell-off might not be fundamentally driven but rather a reaction to market sentiment.