The S&P 500 opened 1.3% lower on Tuesday, with semiconductor makers Nvidia Corp. and Micron Technology Inc. among the biggest drags on the index. The tech-heavy Nasdaq 100 dropped 2.9%, while the Dow Jones Industrial Average slipped 0.4%. The CBOE Volatility Index shot up over 20, reflecting heightened market anxiety.
Korean chipmaker selloff triggers global concerns
A rout in technology stocks dragged U.S. indexes lower after a selloff in Korean chipmakers stoked concerns about the sustainability of the artificial intelligence-driven rally. The drop in South Korea's Kospi index triggered a circuit breaker, with SK Hynix Inc. and Samsung Electronics Co. each plunging more than 10%. This followed a local media report that SK Hynix is slowing expansion of AI memory chip production and shifting emphasis to cheaper commodity DRAM, sparking worries among traders over demand for AI datacenters. SK Hynix declined to comment on the report.
Tech giants hit hard amid valuation fears
Tech is leading markets lower “as a heavy selloff in Asian chipmakers, including a 10% drop in the South Korean Kospi index, is dragging broader equity markets lower amid valuation and capex worries,” said Tom Essaye, founder of the Sevens Report. Micron tumbled over 11% ahead of the release of quarterly results on Wednesday. The stock had been this year's top performer in the Philadelphia Semiconductor Index, rallying more than 300% since January before Tuesday's drop.
The tech rally has faltered this month as investors worry that share prices may have run up too far, particularly the big tech companies that are spending hundreds of billions of dollars on AI. “Hyperscalers are the new software stocks. The group can’t get out of its own way as it leads the Magnificent Seven megacaps lower,” Michael O’Rourke, chief market strategist at JonesTrading Institutional Services LLC, wrote in a note to clients.
Dip buyers may step in, but caution remains
Still, the Nasdaq 100 had risen over 30% since the end of March, and some market participants said the breather was likely to be short-lived, given that dip buyers have swooped in after other drops. “People are looking for reasons to hedge yet stay invested,” Julian Emmanuel, Evercore ISI chief equity and quantitative strategist, said in a Bloomberg TV interview. SpaceX shares dropped for a fourth day as Elon Musk’s rocket firm embarked on a sale of investment-grade bonds.
The rapid buildout of AI data centers has led to a severe squeeze in more traditional memory chips, including the DRAM products that are used in everything from mobile phones and computers to electric vehicles. Mark Li, a Bernstein analyst who tracks the semiconductor industry, warned earlier this year that memory chip prices are going “parabolic.”
