Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
An AI stock sell-off deepened on Tuesday as markets in Asia tumbled, with South Korea’s Kospi down more than 10 per cent and Tokyo sliding more than 4 per cent.
Shares in SK Hynix fell as much as 10 per cent, while its larger rival, Samsung Electronics, dropped more than 12 per cent.
The two companies account for about 40 per cent of the South Korean stock market, giving them an outsized influence on the Kospi. Morning trading was temporarily halted following an 8 per cent slide, with the index 700 points lower at 6,055 in afternoon trading.
The declines come after SK Hynix, the world’s second-largest memory-chip maker, fell sharply in New York on Monday. Its American depositary receipts closed more than 7 per cent lower at $143 — $6 lower than when they started trading earlier this month.
Nvidia closed 5 per cent lower in New York on Monday, allowing Apple to regain its crown as the world’s most valuable listed company. The iPhone maker is now worth $4.95tn after a 1.1 per cent gain, while Nvidia is valued at $4.75tn.
The tech-heavy Nasdaq 100 was set to open 0.75 per cent lower on Tuesday, with the S&P expected to start down 0.2 per cent.
Tuesday’s sell-off comes despite the blockbuster listing of Chinese chipmaker CXMT in Shanghai on Monday that raised $8.5bn after its shares closed up 466 per cent.
45%
Fall in SK Hynix’s shares since June’s record high
The Seoul-listed shares of SK Hynix have now fallen about 45 per cent since hitting a record high above Won3mn ($2,041) in June, wiping about $570bn off its market value and marking one of the world’s steepest declines over the period, second only to SpaceX. The shares had tripled earlier this year before peaking.
SK Hynix’s “stock has gone up too much, too fast this year, so this kind of correction is inevitable”, said Chan H Lee, managing partner at Petra Capital Management, a Seoul-based hedge fund. “But we are likely to see a rebound soon as deleveraging is almost done and global funds will flow in again once they think the correction is complete.”
The Kospi’s Tuesday decline meant the index has fallen by about 25 per cent over the past month and is down by a third from its June peak. It remains 46 per cent higher for the year to date, however.
Japan’s stock market also fell sharply on Tuesday. The Nikkei 225 was down 4.4 per cent in afternoon trading as chip stocks declined, with memory-chip maker Kioxia plunging 18 per cent. The broader Topix was down 2.5 per cent.
Traders in Tokyo have been shocked by the speed of the move, blaming rising interest rates for triggering an unwinding of momentum and retail-driven positions. “I can’t remember seeing anything this bad or violent,” said one senior equities trader.
Kioxia has sunk almost 50 per cent in the past month. The group, which was taken private in 2018 by a Bain Capital-led consortium that included SK Hynix, was briefly Japan’s biggest company by market value earlier this year.
Other semiconductor-related stocks, including Lasertec, Disco, Tokyo Electron and Renesas, were also sharply down on Tuesday.
The Nikkei 225 is now down almost 15 per cent since hitting a high of more than 72,000 points in June.
The sell-off reflects growing investor doubts about the durability of Big Tech spending on AI infrastructure.
Although SK Hynix is expected to post another quarter of record earnings on Wednesday, investors fear that soaring memory prices could eventually curb demand as customers seek to reduce usage or switch to cheaper alternatives.
Concerns over future oversupply have also weighed on sentiment after South Korea’s leading chipmakers recently unveiled aggressive expansion plans.
SK Hynix and Samsung plan to build two new chip plants apiece in South Korea as part of a combined Won800tn ($530bn) investment to double their production capacity for DRam chips over five years.
US rival Micron Technology has also raised planned domestic investment to $250bn to the end of 2035.
Analysts expect SK Hynix on Wednesday to report second-quarter operating profit of about Won64tn, up sevenfold from a year earlier, with revenue more than tripling to roughly $57bn.
Despite the market jitters, analysts remain positive on the industry’s near-term outlook, citing long-term supply agreements that improve earnings visibility.
“Their capacity to increase conventional memory chips will be limited as they expand [high-bandwidth memory chip] production next year,” said KB Securities analyst Kim Dong-won, expecting sales to Big Tech companies and data-centre operators to account for 70 per cent of the company’s revenue, up from 30 per cent in 2017.
Some analysts said the recent sell-off has made SK Hynix shares increasingly attractive, trading at just 4.4 times forward earnings, below Micron’s 6.2 times.
Shawn Oh of NH Investment & Securities said in a note that the recent pullback has made SK Hynix a “compelling buy”, citing its attractive valuations and ongoing deleveraging among Korean retail investors.
