South Korean Chip Stocks Tumble on China Competition and AI Financing Fears

Major South Korean semiconductor stocks fell sharply on Tuesday, as a combination of concerns over the financing of artificial intelligence infrastructure and intensifying competition from China rattled investor confidence in the sector's high-flying rally.

Sector-Wide Selloff

The selloff hit the country's leading chipmakers, with Samsung Electronics dropping as much as 9.5% and SK Hynix plunging by as much as 11.1%, according to a Reuters report. The broader benchmark KOSPI index was trading down approximately 8%.

The downturn for SK Hynix, a key supplier of high-bandwidth memory (HBM) chips to Nvidia, was particularly acute. Its U.S.-listed shares had already fallen overnight, closing at $143.02, below their initial public offering price of $149.

China Competition Fears Mount

Analysts attributed the slump partly to renewed concerns about China's technological advancements. Han Ji-young, an analyst at Kiwoom Securities, noted that reports of Chinese companies developing domestic deep ultraviolet (DUV) lithography equipment have sparked fears that Chinese memory makers could significantly expand production capacity, increasing global competition.

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Further fueling these concerns were several developments:

• The strong stock-market debut of Chinese memory-chip manufacturer CXMT.
• The rising popularity of low-cost Chinese open-source AI models, which could reduce demand for the high-performance chips supplied by Korean firms.

AI Financing Jitters

The selloff was also triggered by news from the U.S. that weighed on the broader AI investment narrative. A Wall Street Journal report that Nvidia may provide a financial backstop of around $250 billion for an OpenAI data-center project caused Nvidia's shares to fall nearly 5%.

This development raised questions among investors about the extent to which leading AI chip companies may be financing their own customers, creating uncertainty about the organic sustainability of the current AI spending boom. According to Han, investors were already growing cautious ahead of upcoming earnings reports, contributing to the negative sentiment.