AI Anxiety Sparks Broad Tech Rout Across Asia, Led by Semiconductor Selloff

Asian technology stocks suffered a sharp selloff on Tuesday, led by a rout in semiconductor shares that sent South Korea's benchmark index to a three-month low and triggered its eighth circuit breaker this year.

The Kospi closed nearly 11% lower, putting it on track for its worst monthly performance since the 1997 Asian financial crisis. Japan's Nikkei 225 slid about 4% to a two-year low, while Taiwan's Taiex index fell more than 4%. The selloff extended a grim session on Wall Street, where the Philadelphia Semiconductor index dropped 2.2% on Monday.

The downturn was driven by two converging anxieties: reports that China has begun mass-producing advanced lithography machines—a critical chipmaking tool long dominated by Western suppliers—and growing unease about the enormous sums flowing into artificial intelligence infrastructure.

According to a report by The Information, a Chinese state-backed company has started manufacturing immersion deep ultraviolet lithography machines. The news sent shares of ASML, the Dutch market leader in the technology, down more than 8% on Monday. Rivals ASM International and BE Semiconductor also fell sharply.

In South Korea, index heavyweights Samsung Electronics and SK Hynix each lost more than 12%, unwinding a dramatic rally that had made them pillars of the country's bull market. Nvidia shares had already slid 5% on Monday after the Wall Street Journal reported the company is in talks to provide roughly $250 billion in financing guarantees for OpenAI as part of a massive data center project, heightening fears about the financial sustainability of the AI trade.

In Tokyo, memory-chip maker Kioxia slumped 18%, and Tokyo Electron fell 11%. Taiwan Semiconductor Manufacturing Co. declined 3%.

China's CXMT Corp., which made a blockbuster debut on Monday with a 466% surge that made it the most valuable company on a mainland Chinese exchange, saw its shares slip but held on to most of those gains. The company's listing underscores investor enthusiasm for China's push for semiconductor self-sufficiency. Official data showed profits in China's chipmaking sector surged more than 2,500% in the first half of the year, according to a report.

"We believe the market was likely spooked by the progress of China's chipmaking equipment capabilities, and was worried that this progress would threaten the competitive position of global chipmaking and chip equipment leaders," said Jing Jie Yu, an analyst at Morningstar.

Stephen Innes of SPI Asset Management said the downturn does not signal a collapse in semiconductor demand or an abandonment of AI investment. "What has changed is the market's willingness to capitalise those promises at almost any price," he said. "The AI trade spent the past several years behaving like a flywheel: rising equity values encouraged more spending, more spending validated higher earnings expectations, and those expectations pushed valuations higher again. Now that same wheel is beginning to throw investors off at speed."

The tech rout was compounded by a slide in oil prices. Brent crude futures fell more than 1% to $87.19 a barrel, extending Monday's nearly 9% plunge, as a lull in hostilities between the U.S. and Iran followed Washington's suspension of air strikes.

Markets are also pricing in about a 38% chance that the Federal Reserve will hike interest rates by 25 basis points on Wednesday, adding to the risk-off mood. The combination of AI fatigue, Chinese competition, and tightening monetary policy bets left little room for a bounce in Asian equities.