The AI trade hit a speed bump as chip and infrastructure names fell across regions. In the US, the Philadelphia Semiconductor Index has given back more than 7% from its high earlier in the month. Asia bore the brunt on Tuesday: South Korea's Kospi tumbled 5.5%, with memory heavyweights Samsung Electronics Co. and SK Hynix Inc. sliding about 7% and 10%.
Taiwan's Taiex lost about 2%. Korea's main gauge now sits below its 200-day moving average and has fallen by roughly one third from the record it set in June.
Earnings season is adding to the tension. With reports from ASML Holding NV and Taiwan Semiconductor Manufacturing Co. due this week, investors are weighing whether the billions funneled into chips, data centers and compute will generate returns that justify the rally. Some veteran voices, including Ray Dalio, have flagged bubble risks.
A claim from China's CXMT Corp. that it reached a long-sought chip technology milestone rattled global memory plays, reviving fears of more supply and lower prices. "The outlook is challenging for the AI trade. It is tough," according to Hao Hong - chief investment officer of Lotus Asset Management - who warned that CXMT might boost output and trigger a price war.
Tone didn't help either. Broadcom's Hock Tan compared how some investors are approaching the AI craze to gambling, and cautioned that funding could become a constraint. As Vey-Sern Ling, managing director at Union Bancaire Privee, put it: "Investors are jittery and looking for excuses to take profit on AI-related stocks that have outperformed this year, especially memory stocks." Still, there's a counterweight: new AI models from companies like Meta Platforms Inc. keep boosting compute needs, underscoring the importance of memory chips over time.
When a selloff spreads from chips to infrastructure, the thesis is being questioned. Market Briefs covers the AI trade free every morning.
Caution is spreading into credit and deals. The rush to finance AI ventures is flowing into the US corporate market that exceeds $10 trillion, leading investors to recalibrate how they price risk for some of tech's biggest names. In a notable move, JPMorgan Chase & Co. and Goldman Sachs Group Inc. have pulled back their exposure to a loan tied to AI startup Volta Infrastructure Holdings Ltd.
Dealmakers in Asia are feeling it too. Nvidia-backed data center operator Firmus Grid Ltd. scrapped its Sydney debut, a stumble that is making investors choosier about AI infrastructure bets reliant on future profits. Separately, Australian data center firm Firmus is considering private capital and a possible US listing after its anticipated Sydney IPO fell through, highlighting questions around appetite and valuation for these assets.
Two catalysts loom large: a wave of chip earnings and Wednesday's US inflation print. "The AI machine is still running at full speed, but its fuel - capital - is getting increasingly expensive," said Hebe Chen, an analyst at Vantage Global Prime, who added that "a tactical rotation towards defensive positions looks increasingly sensible."
Bottom line for your wallet: results from ASML and TSMC, plus the inflation read, will shape how forgiving markets are about the enormous costs behind AI. If the payoff looks slower or pricier than hoped, expect more scrutiny on who gets funded and at what price.
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