Chip Stocks Slide as AI's Financing Bill Comes Into View
South Korea's KOSPI dropped more than 6% during trading on Oct 13, extending its losing streak to five sessions. It fell more than 7% intraday before closing down 5.46% at 6,035.35, its lowest close since late July. The sell-off has put the cost of the AI build-out and its expected returns at the centre of a trade that had lifted semiconductor stocks. Korea JoongAng Daily also reported the KOSPI's fifth consecutive session of losses.
Samsung Electronics and SK Hynix had already fallen 10% and 8%, respectively, on Oct 12. The next day, Samsung shares dropped 7.39% to 232,000 won, while SK Hynix slid 10.09% to 1.443 million won. Tokyo-listed memory-maker Kioxia lost about 13% on Oct 13. US chip selling ran into a fourth day: the Philadelphia semiconductor index fell 1.7%, after an earlier 2.7% decline, and Micron Technology shed 4%.
The declines are steep. The Philadelphia semiconductor index remains up 68% for the year, and Micron's stock has tripled.
Investors have poured money into semiconductor companies and data centre owners since ChatGPT launched nearly four years ago. Cable companies have also drawn funding for an infrastructure race described as larger than America's historic railroad boom. Strains have built since June: a data centre IPO in Australia was shelved last week, and credit investors have grown more selective about AI debt. Pressure on South Korean memory makers has also been linked to progress by China's CXMT, a DRAM producer and a rising competitor to Samsung Electronics and SK Hynix. Investors are weighing how durable AI spending will be, along with the revenue prospects of companies serving the infrastructure market. OpenAI revenue has also become a concern.
Firmus, a data centre operator backed by Nvidia, shelved its US$5 billion IPO after investor interest weakened. On Oct 9, the company cited market volatility and prevailing conditions. Its board said going ahead would not serve the interests of the company and its shareholders. The planned offer was priced at A$11 a share and would have ranked as the second-largest IPO in Australian history. Firmus said it would seek capital in private markets and consider other public or private financing options. CNBC reported the cancellation. In Hong Kong on Oct 13, Tencent Holdings' dollar and dim sum bond sale drew scrutiny. Guidance for its 10-year dollar notes stood about 1.15 percentage points above Treasury yields, which were at 5.2%.
SoftBank's September borrowing shows what capital now costs: the Japanese tech investor raised US$4.5 billion in a 7½-year high-yield debt sale, offering to pay as much as 9.75%. Reuters described it as SoftBank's largest high-yield bond issue at the time. At a Singapore conference on Oct 12, Broadcom chief executive Hock Tan said capital was the biggest constraint on growth.
Bond-market volatility is now spilling into other assets, said Damien Boey, portfolio strategist at Wilson Asset Management in Sydney. He said rising yields and swings in bond prices were beginning to affect asset pricing across the market.
BlackRock's research arm downgraded its outlook for US stocks to neutral on Oct 12, citing "potential volatility around the AI build-out," and turned bullish on short-term Treasuries. The International Monetary Fund warned on Oct 13 that an AI correction could have global consequences. It recognised AI's contribution to growth, while warning that investment in new capabilities and the resulting economic gains may fall short of expectations.
The latest market drop is the heaviest since a similar collapse at the end of July. The KOSPI is on its longest losing streak in more than two years and has fallen a quarter from its July high. Shanghai's tech-focused STAR Market is down more than a third from its July peak. Reuters reported that the Oct 13 decline was the KOSPI's largest one-day fall since mid-August. The sell-off coincided with stronger demand for government bonds.
There were exceptions. Meta rose 3.4% on Oct 12 after releasing a new AI model. Marc Velan, head of investments at Lucerne Asset Management in Singapore, said the "brutal session" in South Korea reflected investor positioning and the cost of capital more than a fundamental decline in AI demand. He said, "I suspect we're entering the next phase of the AI cycle, where markets increasingly focus on monetisation and returns on invested capital. I wouldn't call this the end of the AI trade. But Korea could be an early warning of a broader shakeout."
In South Korea, concerns about Chinese competition and the end of local chipmakers' share-buyback programmes added to pressure, according to Kiwoom Securities analyst Han Ji-young. NBC News reported that investors were also reconsidering the sustainability of AI spending.
