The sell-off in artificial intelligence stocks has escalated, causing South Korea's stock market to plunge to its lowest level in three months.
On Tuesday, investors continued to abandon shares in semiconductor companies due to escalating concerns regarding the significant debt levels that AI firms have incurred to finance their datacentre expansions. Major South Korean players like SK Hynix and Samsung Electronics saw their stock values drop by over 10%, leading to an 11.5% decline in the Kospi index, marking its lowest point since mid-April.
As Wall Street opened on the same day, American semiconductor stocks continued their downward trend, with companies including Intel, Advanced Micro Devices, Sandisk, Western Digital Corp, and Seagate Technology all recording drops of more than 4%.
Analysts have pointed to fresh fears surrounding AI investment expenditures and growing competition from cost-effective Chinese manufacturers. This follows a report by The Information indicating that China has initiated mass production of domestically developed deep ultraviolet (DUV) chip fabrication equipment. Jing Jie Yu, an equity analyst at Morningstar, remarked that the market reaction appears to be driven by anxiety over China's advancements in chip manufacturing, suggesting that this could jeopardize the competitive edge of established leaders in the global chip sector. He characterized the sell-off as largely a reflexive response that could be excessive.
Additionally, shares of Chinese memory chip manufacturer CXMT surged by 466% upon its debut on the Shanghai stock exchange, highlighting China's ambitious efforts to establish an independent AI supply chain.
Furthermore, there is growing apprehension regarding the “circular funding” that characterizes the AI industry, in which AI companies finance each other’s operations. Recently, the Wall Street Journal revealed that Nvidia is in talks with OpenAI to support a $250 billion datacentre initiative in Ohio. Given Nvidia’s strong investment-grade credit rating, its backing could make financing for the project more feasible.
News of these negotiations negatively impacted Nvidia's stock, which fell by 5% by the end of the trading session, dipping below the $200-per-share threshold. Additionally, the cost of insuring Nvidia's debt against default via credit default swaps (CDS) rose sharply. Ipek Ozkardeskaya, a senior analyst at Swissquote, noted the immediate market response to the Nvidia developments, cautioning that it may not be the optimal time to capitalize on any stock dips.
