Global Chip Sell-Off Deepens as Inflation Adds to AI Investment Fears

South Korea's stock market had been a leading beneficiary of the global AI trade. By October 11, that enthusiasm was fading, with Bloomberg reporting that the $4.3 trillion market was struggling to attract buyers.

The reversal was already substantial before this week's sharper losses. On October 12, Economic Times Business & Economy reported that the Kospi had dropped 22% from its peak, making it the worst performer in the second half of the year.

The concern is not simply whether demand for AI chips remains strong. According to South China Morning Post, investors are questioning whether the memory chip sector's AI-driven profit boom can last, even as soaring prices support strong quarterly earnings.

On October 12, Bloomberg Technology reported that Broadcom Chief Executive Officer Hock Tan had compared many AI investors to casino gamblers, suggesting some had little understanding of their bets. His comments gave a sharper edge to the debate about investment expectations.

On October 13, the selling spread across chip stocks. The Financial Times reported that Tan's comments helped push Samsung and SK Hynix sharply lower in Seoul, while CNBC Technology described Asian technology shares following a sell-off in US semiconductor stocks.

Competition from China added another source of pressure. The Guardian reported that Samsung shares tumbled after Chinese rival CXMT claimed strong progress. Economic Times Business & Economy also linked losses in US chip manufacturers, particularly memory and data storage companies, to CXMT's advances and AI spending concerns.

On October 14, inflation compounded those worries. CNN reported that a hot US inflation report fuelled expectations of interest rate increases as technology stocks declined. The Financial Times World reported falls in Nvidia, Oracle and CoreWeave amid concerns about inflation and AI debt.

By October 15, the downturn had returned to Asian markets. CNBC International reported a 10% plunge in SK Hynix shares amid rate hike fears, AI funding worries and signs of reduced spending on artificial intelligence and cloud computing.

The sell-off now reaches beyond individual chipmakers. On October 15, the Financial Times reported deeper losses in AI-related stocks in South Korea and Japan after Wall Street fell on hot US inflation.

Investors are weighing several pressures at once: whether AI investment can sustain expected profits, whether Chinese competitors will gain ground, and whether higher borrowing costs will constrain spending. MarketWatch reported that inflation and financing costs could slow AI development and investment.

China's role is not entirely negative for investors. While CXMT's advances have unsettled established chipmakers, Bloomberg Technology reported on October 15 that the Asian technology sell-off was also prompting investors to consider China as a possible bright spot.

The next test is whether companies' spending plans support the expectations built into the AI trade. MarketWatch reported growing anticipation for Anthropic's investor day as Wall Street became less patient with heavy AI spending.

Funding conditions are another open question. CNBC International reported signs of reduced AI and cloud spending, while CNN linked the latest inflation figures to increased expectations of rate hikes. Whether those pressures lead to further spending restraint will matter for chip suppliers.