Chipmaker slump hits global markets as investors reassess AI outlook

Global stock markets suffer a chipmaker slump as investors question the outlook for AI spending. Chipmakers, which drove markets higher in 1H on expectations of huge AI investment, are now coming under pressure as investors reassess their deployments, the Financial Times reports.

What’s happening? “Worries around funding uncertainties, capex increases and Big Tech cashflow have taken center stage,” Barclays' head of US equity strategy Venu Krishna said.

The sell-off fever spread across the sector: US chip stocks suffered losses over the past couple of days. Memory products firm Sandisk, which dropped 11% on Monday, fell by the same amount yesterday, pushing the stock down more than 40% over the past month. Western Digital, Micron, Advanced Micro Devices, and Intel each lost at least 4% yesterday, while Europe’s ASML declined by 3%.

South Korean chipmakers remained at the center of the rout. The Kospi dropped more than 10% on Tuesday, with SK Hynix falling 14.7% and Samsung Electronics dropping 13.4%, leaving both stocks down more than a third in July. Oversupply concerns dropped the investment appetite for both firms after they revealed plans to each develop two new semiconductor plants to double DRAM production capacity over the next five years.

Other Asian markets were also affected by the trend: Japan’s Nikkei 225 fell 4% yesterday, with memory-chip maker Kioxia plunging more than 18%, halving its share price in July. Meanwhile, China’s memory-chip maker CXMT dropped more than 4%, following a 466% jump in its shares on Monday after raising USD 8.5 bn in its Shanghai listing.

Rising costs and liquidity constraints are fueling concerns: Investors are anticipating Big Tech 2Q earnings to see if they can keep funding their AI buildout, focusing on whether higher capital spending and borrowing levels can be sustained. Alphabet’s shares fell 7% in a single session last week after the company reported a sharp rise in outflows tied to AI infrastructure spending.

China’s AI rise is also affecting investor sentiment: The growing competition from lower-cost Chinese rivals and concerns over Western AI spending drove the sell-off in Asian technology stocks, Deutsche Bank analyst Jim Reid said. Those concerns intensified after Chinese AI startup Moonshot launched a large language model last week with capabilities close to those of leading US developers such as Anthropic.

Despite the rising caution, demand is set to remain strong. Concerns over rising capital spending and funding needs are driving the sell-off, but demand for AI remains robust, based on the earnings reported so far, State Street's head of Equity Research Marija Veitmane said. Investors are being more cautious, however, regarding the end of the AI boom, with rising credit default swap prices tied to big names serving as evidence of growing concerns, GAM Group CEO Albert Saporta said.

MARKETS THIS MORNING-

Asia-Pacific markets are mostly down in early trading as the global tech selloff continues. South Korea’s Kospi, Japan’s Nikkei, and the Shanghai Composite are all down, while the Hang Seng is trading higher.

THE CLOSING BELL-

The EGX30 rose 0.2% at yesterday’s close on turnover of EGP 11.1 bn (18.0% above the 90-day average). Regional investors were the sole net sellers. The index is up 28.5% YTD.

In the green: Telecom Egypt (+1.7%), Arabian Cement (+1.5%), and ADIB (+1.3%).

In the red: Rameda (-2.1%), Juhayna (-1.8%), and Heliopolis Housing (-1.7%).