AI Stock Rout Deepens as Chip Makers Tumble

A global selloff in chip-maker stocks intensified Tuesday, as investors grew worried about the long-term strength of the artificial intelligence (AI) boom, "circular" funding deals, and rising competition from China. The losses come just as major Silicon Valley companies are set to report their quarterly earnings. The hardest hit was South Korea’s Kospi index, which closed down 10.84%. Japan’s Nikkei fell nearly 4%. Markets in China and Southeast Asia also dropped, while India showed mixed results. The selloff followed a mixed close on Wall Street, where the Nasdaq fell 0.18%. Investors are now focused on earnings reports from big tech firms this week, questioning whether the AI boom is sustainable. “Concerns around funding uncertainty, rising capital investments, and free cash flow at big tech have taken center stage,” said Venu Krishna, head of U.S. equity strategy at Barclays, to the Financial Times. Recent earnings reports have revealed investor nervousness about high AI spending. Alphabet’s stock fell 7% in a single day last week after the company said Google had used up its cash reserves in the second quarter to fund AI infrastructure. Adding to the unease, Chinese AI startup Moonshot last week launched a large language model that appeared to rival top U.S. labs like Anthropic. This worried investors who bet that Silicon Valley giants would keep spending heavily to stay ahead. Fears are also growing over so-called “circular” deals, where AI investments form a web of dependencies between tech makers and AI startups. This could amplify losses if AI demand does not meet high expectations. On Monday, The Wall Street Journal reported that Nvidia is in talks to back a $250 billion financing deal to help OpenAI lease a data center complex in Ohio. The project could involve over $500 billion in total investment, making it the largest such infrastructure ever announced. **Crash in South Korea** At the market open, Korea Exchange had to activate a “sidecar” sell mechanism, which halts programmed selling for five minutes, after the Kospi 200 futures index dropped more than 5% in one minute. Samsung Electronics, the country’s top chip maker, fell 13.39%. Rival SK hynix plunged 14.65%. Tech investment firm SK Square dropped 15.6%, and chip equipment maker Hanmi Semiconductor fell 12.22%. Losses spread to the auto sector. Hyundai Motor shares fell 9.68%, and Kia dropped 6.6%. In defense, Hanwha Aerospace fell 2.67%, while Korea Aerospace Industries lost 2.19%. **Tech Stocks Drag Down Tokyo** Japan’s Nikkei index fell 3.95%, losing 2,566.27 points to close at 62,364.92. The broader Topix index fell 2.52% to 3,963.59. Memory maker Kioxia plunged 18.33%, hitting its daily price limit. Advantest, which makes semiconductor production equipment, fell 10.11%. Tokyo Electron dropped 10.96%. **China Turns Red** China’s Shanghai Composite index fell 1.16% to 3,813.31. The Shenzhen index lost 4.52% to close at 13,509.68. However, Hong Kong’s Hang Seng index bucked the trend, rising 0.41% to 25,310.85. Optimism over China’s chip industry boosted the market. The Hang Seng China Enterprises index rose 0.85%. In Southeast Asia, losses were more moderate. Indonesia’s market led declines, falling 0.36%, followed by Singapore and the Philippines, both down 0.17%, and Malaysia, down 0.05%. Vietnam’s VN index rose 0.48%. Thailand’s market was closed for a holiday. **India Mixed** Indian stock markets showed mixed results in early trading. The Sensex and Nifty 50 both rose 0.04%. The information technology sector led gains, with Tata Consultancy Services rising over 4%. Financial and real estate sectors saw losses.