Asian stock markets experienced a sharp sell-off, particularly in the semiconductor sector, after reports emerged that a Chinese state-backed company is developing immersion deep ultraviolet (DUV) lithography machines. This development sparked concerns about increased competition for global chipmakers. South Korea's Kospi index suffered its worst day since early March, plummeting 10.8%, with Samsung shedding 13.4% and SK Hynix falling 7.5% (later stabilizing after earnings showed a sixfold increase in operating profit but missed higher expectations). Japan's Nikkei 225 also saw significant losses, down 4%, and memory chip producer Kioxia slumped over 18.3%. In contrast, Chinese and Hong Kong tech stocks proved more resilient, with the Hang Seng remaining flat and the Shanghai Composite down 1.2%.
The decline in chip stocks was exacerbated by investor worries about the sustainability of massive AI-related investments, particularly after reports of Nvidia's AI funding commitments exceeding $750 billion. Analysts, such as Jing Jie Yu of Morningstar, acknowledged that the market was "spooked by the progress of China’s chipmaking equipment capabilities" but suggested the sell-off was likely an "overdone" knee-jerk reaction, as the dominant position of global chipmaking leaders is unlikely to be meaningfully threatened. However, concerns persist that if AI does not generate anticipated profits or productivity, major computer memory spenders might reduce investments, and lower-cost AI models from China could decrease demand for memory and computing power.
While the technology sector faced a downturn, broader equity markets showed mixed results. The S&P 500 rose modestly by 0.2%, and the Dow Jones Industrial Average jumped 537 points, or 1.1%. The Nasdaq composite, however, slipped 0.2% after briefly dropping 9.3% below its record. In Europe, indices like the DAX (+1.04%), CAC 40 (+0.40%), and FTSE 100 (+0.42%) saw decent gains, although the Stoxx 600 (+0.02%) was partially pulled down by ASML and other semiconductor companies. The market overall is showing a rotation away from AI superstar stocks towards other sectors, a trend some strategists believe could be healthy for the broader market.
