Key takeaways

  • Chip stocks have sold off again on renewed fears over Chinese competition and market speculation.
  • Memory chip stocks Samsung and SK Hynix were among the hardest hit, while SanDisk, Micron, and ASML also slid.
  • Third-quarter tech earnings kick off in earnest this week with ASML and TSM.

Global chip stocks extended their selloff on Tuesday amid deepening concerns over advancing Chinese competition and “casino”-like speculation in the AI trade.

Shares of the world’s two largest memory chipmakers, Korea’s SK Hynix 000660 and Samsung 005930, are down 15% and 13% respectively since Monday’s open in Korea, following reports that Chinese chip firm CXMT 688825 has made “key progress” on a new memory architecture to rival their own currently under development.

US semiconductor stocks are also under pressure, albeit to a lesser extent, after Broadcom’s AVGO CEO likened AI investing to a “casino.” Shares of Micron MU and SanDisk SNDK are down 5% and 3%, respectively, on Tuesday, extending declines in the previous session. And in Europe, ASML ASML, BE Semiconductors BESI, and STMicroelectronics STMPA fell 2%-4%.

The fresh AI jitters come as investors gear up for third-quarter earnings season and further color on AI momentum. “Investors are increasingly worried that cracks are starting to show in the AI trade,” says Dan Coatsworth, head of markets at AJ Bell.

China advances chip development

CXMT’s president Cao Kanyu announced over the weekend that the firm plans to roll out a new 4F2 DRAM (dynamic random access memory) chip structure by the end of 2026. The 4F2, or “4F square” technology, refers to a new design that enables higher storage density by fitting more cells on a single chip. Both Samsung and SK Hynix are also pursuing 4F square chip designs in an upgrade to the currently ubiquitous 6F square structure.

Morningstar equity analyst Jing Jie Yu says CXMT’s announcement has disrupted investors’ expectations around development timelines, while ramping up fears over the accelerating pace of lower-cost Chinese technologies, which could disrupt leading AI firms.

“If the company can commercialize this technology ahead of its peers, it speaks volumes to China’s DRAM technological competitiveness and raises risks of oversupply longer term given the country’s rapid expansion in DRAM capacity,” he says.

Samsung and SK Hynix, whose memory chips have been instrumental in the AI infrastructure buildout, are up 150% and 250%, respectively, over the past 12 months, even as the AI trade has lately shown signs of cooling.

AI trade a ‘Casino,’ Broadcom’s Tan says

On Monday, Broadcom CEO Hock Tan raised doubts over the record run-up of AI stocks over recent quarters, comparing investor speculation in the market to gambling. “A lot of investors have no clue what they are investing in,” he told a conference in Singapore. They “set very extreme expectations, only to find out that it’s almost like they are in a casino.”

He was joined at the conference by Intel CEO Lip-Bu Tan, who said the rapid AI buildout could exacerbate existing hardware shortages, with memory stocks likely to be among the first areas to lose steam.

AJ Bell’s Coatsworth says the comments reflect intensifying market skepticism over firms’ ability to realize gains from their bumper AI spending. “There are growing fears that companies are investing so much money into AI without a clear idea of the timing or scale of financial payback,” he says. “High bond yields and expectations for multiple interest rate hikes over the next 12 months also create a challenging backdrop for the growth stocks that populate the AI space, as that negatively affects the present value of future cash flows. A lot of tech valuation is about the jam tomorrow, rather than the jam today.”

Third-quarter tech stock earnings begin in earnest this week, with Dutch chip equipment firm and AI bellwether ASML posting results on Wednesday. Investors will be watching for signs of continued demand from semiconductor manufacturers, as well as updates on developments in its more advanced machinery. Semiconductor foundry firm Taiwan Semiconductor Manufacturing TSM reports on Thursday, followed by AI hyperscalers Meta Platforms META and Microsoft MSFT next week.

Last week, Samsung projected a nearly ninefold surge in third-quarter operating profit amid continued supply shortages. The results speak to the pace and scale of recent AI investment. However, Coatsworth urges investors to remain vigilant: “The semiconductor industry is known for being highly cyclical, and there is a fear that certain investors have forgotten this important point. Many people think demand will stay strong forever, and they run the risk of being caught out if they are heavily exposed to semiconductor stocks in their portfolio and there is a tech-led market correction.”