Chip Stock Selloff Deepens in Asia, Extends to Europe and US

Key Takeaways

• SK Hynix and Samsung Electronics extend falls, dragging South Korea’s tech-heavy stock benchmark lower.
• The selloff expanded to chip stocks globally, after a hotter US inflation print added to interest rate hike bets, fueling AI debt worries.
• Strong results from TSMC and ASML struggle to shelter the stocks from jitters across the sector.

The selloff in chip stocks deepened on Thursday, as a hotter US inflation reading raised expectations of further interest rate hikes, exacerbating concerns about the debt-fuelled AI buildout.

South Korea’s Kospi index plunged 7.6% on Thursday, with heavy losses during the session triggering a circuit breaker, temporarily halting trading. Chip giants SK Hynix 000660 and Samsung Electronics 005930 led falls, dropping 11% and 9.5%, respectively. The stocks have tumbled since the start of the week, following reports of advances by Chinese chip firm CXMT 688825 on a new memory architecture, reigniting competition concerns.

The selloff has extended to other chip stocks, including US giant Nvidia NVDA, down 1.6% in premarket trading on Thursday, after closing the previous session more than 3% in the red. Micron Technology MU and Marvell Technology MRVL were each down more than 4% ahead of regular US trading hours. In Europe, Dutch chipmaking equipment company ASML ASML fell more than 5% by Thursday afternoon, while Paris-listed semiconductor firm STMicroelectronics STMPA sunk 7%.

The latest bout of selling came after September’s US inflation reading, released on Wednesday, came in hotter than expected. This has fueled expectations that the Federal Reserve could raise interest rates again at the end of this month, having announced a quarter point increase in September, which was its first hike since 2023. The concern is that higher interest rates could make debt more expensive for major tech companies, which have been relying on credit markets to help fund the expansion of AI capacity.

“Tech investors are getting uncomfortable with the amount of debt being used to fund the AI build-out,” says Dan Coatsworth, head of markets at AJ Bell. “There is a growing fear that big names in the tech space are running too fast, and they’re primed to trip up.”

Chip Stocks Down Despite Earnings Beating Expectations

Even an earnings beat from the world’s largest contract chipmaker, TSMC 2330 wasn’t enough to shelter the stock from broader AI jitters, as shares in the Taiwan-listed company fell 2% on Thursday.

TSMC topped expectations in its third quarter results, published on Thursday, reporting revenue of TWD 1.49 trillion, or $46.7 billion, which marked a 41% increase year over year. The company reported net income of TWD 763 billion and an operating margin of 58.7%.

“TSMC remains in an enviable position with a strong set of results setting up what looks to be another positive year,” says Ben Barringer, head of technology research at Quilter Cheviot.

He adds that a gross margin of 66% for the third quarter reflects a business that is seeing growing demand. “The company has not provided a guide for the year ahead, but TSMC is able to have a good indication of what its customers are doing, and crucially what its customers’ customers, i.e. the hyperscalers, are doing.”

ASML, which makes the lithography machines that are key to the chipmaking process, also reported strong results this week. The Amsterdam-listed company reported higher-than-expected net profit on Wednesday.

On the back of these numbers, ASML raised the lower end of its total net sales guidance for the year, saying it now expects this to be in the range of EUR 44 billion and EUR 45 billion, versus a previous range of EUR 43 billion to EUR 45 billion. Christophe Fouquet, CEO of ASML, said in the results that some customers were expressing interest in placing orders with the company for 2029 and 2030, giving investors further visibility on demand.

Quilter Cheviot’s Barringer says that ASML “remains a high-quality company with an excellent market position.”

As the earnings season gets fully underway, investors will be focused on whether Big Tech hyperscalers can show evidence of continued AI demand, to demonstrate that their investments in the space are paying off.