The selling of AI stocks intensified, sending the South Korean stock market to its lowest level in three months.
Investors continued to dump chip stocks on Tuesday amid growing concerns that AI companies are borrowing heavily to finance data center expansion plans.
South Korean semiconductor companies SK Hynix and Samsung Electronics fell more than 10%, and the country’s Kospi stock index fell 11.5%, its lowest since mid-April.
Analysts blamed the selloff on renewed concerns about AI investment spending and competition from cheaper Chinese companies, following a report in the Information that China has begun mass production of domestic deep ultraviolet (DUV) chip-making tools.
“The market was probably spooked by advances in China’s semiconductor equipment capabilities and worried that these advances would threaten the competitive position of the global semiconductor equipment and chip equipment leaders,” said Jing Jie Yu, equity analyst at Morningstar, adding that the selloff was “largely an opportunistic reaction and an overreach.”
Shares of Chinese memory chip maker CXMT rose 466% on Monday when it was listed on the Shanghai Stock Exchange, highlighting China’s push to build its own AI supply chain.
Investors may also be growing concerned about the so-called circular financing, which is central to the AI industry and involves artificial intelligence companies funding each other.
On Monday, the Wall Street Journal reported that Nvidia is in talks with OpenAI about providing $250bn (£188bn) for a massive data center project in Ohio. Backing from Nvidia, which has an investment-grade credit rating, could lower financing costs for the project.
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News of the talks sent Nvidia’s stock price plummeting on Monday. The stock closed 5% lower, while the cost of using credit default swaps (CDS) to cover defaults by semiconductor companies rose.
“The market’s reaction to the NVIDIA news was swift. NVIDIA fell 5% to close below $200 per share. More importantly, NVIDIA’s 5-year CDS soared, suggesting it may not be the right time to buy on the bullshit yet,” said Ipek Ozkardeskaya, senior analyst at Swissquote.
