AI sell-off intensifies as investors ditch chip stocks
A sell-off in AI-related shares deepened on Tuesday, pushing South Korea's stock market to its lowest level in three months, as investors grew increasingly anxious about heavy borrowing by AI firms to fund datacentre expansion. Chipmakers Samsung Electronics and SK Hynix each fell by more than 10%, dragging down the Kospi index, in a move analysts linked to fresh doubts over AI investment spending and intensifying competition from Chinese rivals.
The slide followed a report that China had begun mass-producing its own deep ultraviolet chip-making tools, stoking fears about the country's growing capability in semiconductor equipment, while shares in Chinese memory chipmaker CXMT surged 466% on their Shanghai listing. Concerns also mounted over "circular funding" within the AI sector, after reports that Nvidia was in talks to provide $250bn (£188bn) towards a huge OpenAI datacentre project in Ohio; news of the discussions sent Nvidia's shares down 5% and pushed up the cost of insuring its debt against default.
In short
- AI chip stocks slumped, South Korea's Kospi hit a three-month low
- Samsung and SK Hynix each fell more than 10%
- Nvidia's $250bn OpenAI datacentre talks rattled investors, shares fell 5%
Steelman: both sides, in good faith
The strongest fair case each way — we don't pick a winner.
The case for
Substantial infrastructure investment is proportionate to transformative technologies' potential, and debt financing for productive assets remains standard practice in major capital projects. The concerns about circular funding conflate normal capital-raising dynamics with speculation, whilst current market pullbacks represent healthy corrections allowing valuations to reset; the long-term returns from datacentres will justify the present investment phase.
The case against
The scale of borrowing and reports of circular funding—where AI companies are effectively funding each other's expansion—suggest valuations have become disconnected from near-term profitability and realistic returns on capital. Heavy debt burdens combined with intensifying Chinese competition threaten the margins necessary to service this debt and justify these investments, making the market pullback a justified reassessment of risk.
Explained simply
Artificial intelligence companies have been investing enormous sums into building vast datacentres needed to power their systems, requiring enormous quantities of specialised computer chips. This rapid expansion has driven strong share price gains for chipmakers, particularly benefiting economies like South Korea and Taiwan that produce semiconductors. Investors have been enthusiastic because demand for these chips appeared likely to grow substantially over time.
Now several concerns are affecting investor confidence. Many AI firms have borrowed large sums to fund their datacentre expansion, and analysts question whether this investment will generate sufficient returns to justify the debt levels. Additionally, China is developing its own advanced chipmaking capabilities, potentially reducing demand for chips made by Western manufacturers.
There are also concerns about circular funding patterns, where technology firms appear to be financing each other's projects in ways that may not reflect genuine independent demand. These concerns have prompted investors to reassess their positions in AI stocks.
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