Asian chip stocks plunge as AI trade unravels on Chinese competition and funding fears

Asian technology stocks suffered their worst day in decades on Tuesday, with South Korea and Japan leading a broad selloff driven by Chinese competition in chipmaking equipment and mounting doubts about the sustainability of AI spending.

South Korea’s Kospi index closed 11% lower, triggering its eighth circuit breaker this year and heading for its largest monthly decline since the Asian financial crisis in 1997, according to a Reuters report. The index had more than tripled over 12 months to June but has since shed more than a third of its value.

Index heavyweights Samsung Electronics and SK Hynix each lost more than 12%. The two companies have fallen nearly 50% from all-time highs recorded last month, according to one report.

Japan’s Nikkei 225 slid about 4%, touching a two-year low. Memory-chip maker Kioxia, one of the market’s standout performers in the first half of the year, slumped 18%. Tokyo Electron fell 11%. Taiwan Semiconductor Manufacturing Co. dropped 3%, dragging the Taiex index down 5%.

The selloff followed a bleak day on Wall Street, where Nvidia fell 5% on Monday, wiping $250 billion from its market value and allowing Apple to reclaim the title of the world’s most valuable publicly traded company.

**Chinese competition rattles markets**

The downturn was triggered by reports that China had begun mass-producing chipmaking equipment long dominated by Dutch supplier ASML. Tech publication The Information reported that Chinese state-backed company Shanghai Yuliangsheng had started production of immersion deep ultraviolet lithography machines, roughly the size of a double-decker bus, that use high-powered lasers to imprint designs on silicon wafers.

The news sent ASML shares down more than 8% on Monday. Rivals ASM International fell more than 7% and BE Semiconductor dropped nearly 10%.

“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, as quoted by one source.

**AI funding anxiety**

Investor unease extended beyond the threat of Chinese competition. The Wall Street Journal reported that Nvidia is in talks to provide roughly $250 billion in financing guarantees for OpenAI as part of a massive data-center project, a report that added to concerns about the financial interdependencies of the AI ecosystem.

“There is no one red flag that’s moving the market, but rather a combination of nerves about AI funding and China’s rise as a competitor all along the supply chain,” said Chris Weston, head of research at broker Pepperstone in Melbourne, in a Reuters report.

Stephen Innes of SPI Asset Management said the downturn did not signal a collapse in demand for semiconductors or that tech giants would abandon AI infrastructure investments. “What has changed is the market’s willingness to capitalise those promises at almost any price,” he said.

**CXMT debut holds up**

China’s CXMT Corp., which listed on Monday and raised $8.6 billion, was not entirely spared. The stock fell as much as 7.7% at the open before ending Tuesday 4% lower. The pullback barely dented its 466% debut surge, leaving the stock with a market value of roughly 3.3 trillion yuan ($487 billion), making it the most valuable company listed on a mainland Chinese exchange.

The blockbuster debut underscored investor enthusiasm for China’s push for semiconductor self-reliance. Official data showed profits in China’s chipmaking sector surged more than 2,500% in the first half of the year. Bernstein analyst Qingyuan Lin wrote in a note that Chinese memory-chip makers have significantly sped up capacity-expansion plans.

“The market’s concern lies less in CXMT’s current earnings and more in its potential for accelerated capacity expansion to rival Korean companies,” said Kim Seok-hwan, a market analyst at Mirae Asset Securities in Seoul, as quoted by Reuters.

**Oil slides, Fed rate hike in focus**

The selloff was compounded by a sharp decline in oil prices. Brent crude futures fell more than 1% to $87.19 a barrel, extending Monday’s nearly 9% plunge, after a lull in hostilities between the U.S. and Iran. President Donald Trump said the U.S. was having “good talks” with Iran and there was a chance of a deal.

Markets have priced about a 38% chance that the Federal Reserve will hike interest rates by 25 basis points on Wednesday. “The U.S.-Iran war, by propelling the price of crude oil, remains the most important determinant of what will happen to the global economy … and, by extension, what informs central bank policy outlooks, at the margin,” said Thierry Wizman, currency and rates strategist at Macquarie Group, in a Reuters report.

The yen traded at 163.78 to the dollar, barely above a four-decade low, with markets on edge about potential Japanese intervention. The Bank of Japan’s policy decision later this week is in focus.