LONDON – Semiconductor stocks suffered a brutal sell-off across global markets on Tuesday, with South Korea’s KOSPI index triggering a circuit breaker after plunging 8 percent, as renewed doubts about the artificial intelligence trade sent investors fleeing from the sector that has powered much of this year’s rally.
The rout began in Asia and quickly spread to Europe and the United States, wiping billions of dollars in market value from chipmakers and technology giants. The sell-off marks one of the most significant corrections in the semiconductor space since the AI boom began.
South Korea leads the decline
South Korea bore the brunt of the sell-off on Tuesday. The KOSPI index fell by more than 8 percent in morning trading, triggering an automatic trading halt for the first time in months. Samsung Electronics and SK Hynix, two of the world’s largest memory chip manufacturers, led the declines.
The sell-off extended across the Asia-Pacific region. Japan’s Nikkei 225 fell more than 3 percent, dragged down by Tokyo Electron and Advantest, both major semiconductor equipment suppliers. Taiwan’s benchmark index also declined sharply, with TSMC, the world’s largest contract chipmaker, falling more than 5 percent.
European and US markets follow
European semiconductor stocks were not spared. ASML Holding fell more than 4 percent. Infineon Technologies and STMicroelectronics also posted substantial losses.
Wall Street faced a similarly grim session. The Philadelphia SE Semiconductor Index dropped more than 5 percent. Nvidia, the poster child of the AI boom, fell sharply alongside Advanced Micro Devices and Intel.
AI investment under scrutiny
The sell-off reflects growing unease among investors about whether the massive spending on AI infrastructure will deliver the returns that markets have priced in. Analysts point to a growing gap between the capital expenditure commitments of major tech companies and the revenue generation from AI products.
The market is finally asking the hard question: when will all this AI spending translate into real profits? For now, the answer is not clear enough, and investors are rotating out of the trade.
Market analyst, London
Big Tech companies including Microsoft, Amazon, Meta and Alphabet have collectively pledged hundreds of billions of dollars in capital expenditure, much of it directed at AI data centers and specialized chips.
Broader market impact
The chip rout also dragged down broader indices. The S&P 500 and Nasdaq both fell more than 2 percent in early trading. The sell-off also hit cryptocurrency markets, with Bitcoin falling below $60,000 for the first time in weeks.
Bond markets saw a flight to safety, with yields on 10-year US Treasury notes falling as investors sought haven assets. The VIX index spiked to its highest level in three months.
Outlook
Market participants will be closely watching upcoming earnings reports from major tech companies for signs of whether the AI investment cycle is slowing. Nvidia reports next month.
Some analysts argue that Tuesday’s sell-off represents a healthy correction rather than the beginning of a prolonged downturn. Others warn that the dislocation could deepen if more investors conclude that AI-related valuations have become detached from fundamentals.