AI Chip Stock Sell-Off Drags South Korea’s Kospi Index to Three-Month Low
South Korea’s stock market dropped to its lowest level in three months as an intensification in the sell-off of artificial intelligence stocks hit major semiconductor companies.
The downturn hit local hardware giants hard. South Korean semiconductor heavyweights SK Hynix and Samsung Electronics both fell by more than 10%. That steep decline dragged the country’s Kospi share index down to its lowest point since mid-April.
China’s DUV Chip-Making Tools Spark Market Jitters
Analysts attributed the sell-off to renewed worries over AI investment spending and mounting competition from cheaper Chinese companies. The shift followed a report by the Information stating that China has begun mass production of homegrown deep ultraviolet (DUV) chip-making tools.
“We believe the market was likely spooked by the progress of China’s chip-making equipment capabilities, and was worried that this progress would threaten the competitive position of global chip making and chip equipment leaders,” said Jing Jie Yu, an equity analyst at Morningstar. Yu added that the market reaction was “largely a kneejerk reaction and overdone.”
Underscoring China’s drive to build an independent AI supply chain, shares in Chinese memory chip maker CXMT surged by 466% on Monday when the company floated on the Shanghai stock exchange.
Circular Funding and Nvidia’s Massive Ohio Datacentre Project
Beyond hardware competition from China, investors are growing increasingly jittery about the “circular funding” model at the core of the artificial intelligence industry, where AI firms heavily finance one another.
The Wall Street Journal reported on Monday that Nvidia is in discussions with OpenAI to provide $250bn (£188bn) for a massive datacentre project located in Ohio. Backing from Nvidia, which holds an investment-grade credit rating, could significantly lower the cost of raising debt for the project.
News of the high-stakes talks immediately weighed on Nvidia’s stock. Shares closed 5% lower on Monday, while the cost of insuring the chip maker’s debt against default using a credit default swap (CDS) rose.
“The market reaction to the Nvidia news was swift,” said Ipek Ozkardeskaya, a senior analyst at Swissquote. “Nvidia fell 5% and closed the session below the $200-per-share mark. More importantly, Nvidia’s five-year CDS spiked, suggesting that it may not yet be the right time to buy the dip.”
Did you know?
Credit default swaps (CDS) act like insurance policies for bondholders, allowing investors to buy protection against a company defaulting on its debt. When a company’s CDS spikes, it signals that the market views its short-term credit risk as rising.
Frequently Asked Questions
Why did South Korea’s Kospi index drop?
The Kospi fell to a three-month low after a sharp sell-off in AI stocks caused major local semiconductor firms, including SK Hynix and Samsung Electronics, to drop by more than 10%.
What caused the renewed investor anxiety over AI stocks?
How did Nvidia shares respond to the OpenAI datacentre report?
Nvidia shares fell 5% to close below $200 after reports emerged regarding its potential financial backing for a massive $250bn datacentre project in Ohio.
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