South Korean chipmakers SK Hynix and Samsung Electronics saw their shares fall steeply in late July amid investor concerns over AI investments and competitive pressures from China. SK Hynix shares dropped up to 16%, while Samsung lost nearly 10% during the sell-off that began around July 27 and extended through July 29, wiping out recent AI rally gains. [1, 2, 3]

The Kospi index plunged approximately 40% from its peak a little over a month earlier, hitting its lowest level since early to mid-April. The sell-off erased nearly US$2.18 trillion in Seoul equity market value. [1, 2, 4]

Investors have expressed doubts about the returns on the massive AI spending wave, estimated to exceed US$750 billion globally, fueled by concerns over excessive borrowing by AI companies. Some also point to intensifying competition from Chinese chipmakers and chip equipment producers as a key factor. Domestic Chinese firms like CXMT saw their IPO shares surge 466% in July, highlighting China’s expanding chipmaking capabilities. China has started mass production of advanced chipmaking tools, including deep ultraviolet lithography machines. [1, 2, 5, 3]

Nvidia, a leading supplier of AI chips, also faced pressure. Its shares fell while the cost of its credit default swaps surged following talks of US$250 billion in data center financing with OpenAI, signaling investor caution on AI spending levels. [6, 1]

Asian markets broadly declined during the chip sector sell-off from July 27 to 29. South Korea, Japan, and Taiwan saw sharp falls, while the US Philadelphia Semiconductor Index also dropped over multiple days. [6, 7, 8, 9, 2, 3]

South Korean Finance Minister Koo Yun-cheol apologized for the introduction of single-stock leveraged ETFs, which many see as having exacerbated the sell-off. He said the government is reviewing market stabilization measures related to these funds. [4]

Meanwhile, geopolitical tensions remain elevated as oil prices fell during a pause in US strikes on Iran but spiked again following new attacks in the Middle East. These developments continue to weigh on investor sentiment. [6, 7, 8, 2, 10]

SK Hynix reported record second-quarter profits but missed some investor expectations, which added to selling pressure despite solid earnings. Portfolio manager Gary Tan said strong results are no longer enough in the AI-driven market, with investors seeking clearer long-term growth drivers. [2, 4, 10]

Market watchers are now focusing on upcoming earnings reports from major US tech companies, known as the Magnificent Seven, and Federal Reserve decisions for further market direction. Analyst Chris Larkin warned that geopolitical risks and AI spending remain key wild cards ahead. [6, 7, 8, 3, 10]