The Chips Rout Goes Global

The Chips Rout Goes Global

**Semiconductor stocks plunged from Seoul to Silicon Valley on Tuesday, with South Korea's KOSPI sinking nearly 11% as a triple threat of AI spending concerns, Chinese competition, and "circular financing" fears sent shockwaves through the global tech trade .**

## A Global Contagion

The selloff began in Asia and quickly spread across time zones. South Korea's KOSPI index tumbled 10.8% to 6,023.66, with trading temporarily halted after the benchmark dropped more than 8% intraday . Chip giants SK Hynix plunged 14.7% and Samsung Electronics sank 13.4%, wiping out billions in market value . The Nikkei 225 fell 4% in Tokyo, while Taiwan's Taiex dropped 4.7% .

European chipmakers followed suit. ASML—the Dutch lithography giant that dominates the market for advanced chipmaking tools—fell more than 8% on Monday and continued lower Tuesday . ASM International and BE Semiconductor dropped between 2% and 3% in early European trading .

In the U.S., the PHLX Semiconductor Index dropped more than 4% . Nvidia fell roughly 1% after a 5% decline on Monday, losing its crown as the world's most valuable company to Apple . AMD dropped 7%, and shares of Micron, SK Hynix's U.S.-listed ADRs, and SanDisk all fell more than 5% . The VanEck Semiconductor ETF lost more than 2%, adding to last week's losses .

**The sector has now tumbled more than 20% from its June highs, confirming a bear market for chip stocks .**

## The Triple Threat

### 1. The AI Spending Reckoning

Investors are increasingly questioning the sustainability of Big Tech's artificial intelligence spending spree. For months, the market rewarded any news of AI investment. Now, the question is: **when will the profits arrive?**

"The key issue has always been one of timing in the sense of when the market will start to worry about the return on investment (made in AI)," wrote Christopher Wood, global head of equity strategy at Jefferies . He noted that it would be "interesting to know the extent to which Anthropic and OpenAI's revenue growth slowed month-on-month in June, as corporates cut back on their previous practice of positively encouraging employees to play around with AI models regardless of the cost" .

Concerns about AI profitability, valuations, and concentration risks are likely to persist, according to the Amundi Investment Institute. "Capex overspending and lacklustre results remain key risks for US hyperscalers, especially as the recent rally in memory-chip makers may be showing signs of excess" .

### 2. The Chinese Competition Threat

China's rapid advances in semiconductor technology have added fresh urgency to the selloff.

A report that a Chinese state-backed company has begun mass-producing homegrown immersion DUV chipmaking tools fueled a selloff in ASML shares . While the Chinese DUV machines still lag ASML's technology, they provide a domestic alternative that could eventually reduce China's reliance on foreign equipment—a key pillar of U.S. export controls.

CXMT's blockbuster IPO in Shanghai, which surged 466% on its debut, also renewed investor concerns that the company's rapid expansion could weigh on memory chip prices . The company raised at least $8.6 billion and is now valued at more than $487 billion, making it China's most valuable listed company .

Jefferies' Christopher Wood noted that top Chinese AI models processed 36.39 trillion tokens on OpenRouter in the week ended July 19, up from 4.37 trillion in late April, compared to just 7.39 trillion tokens for the top U.S. models . "There is also a growing realisation now that China has become a technological peer to the US in AI, as well as in so many other areas," Wood wrote .

### 3. The "Circular Financing" Fear

Perhaps the most structural concern driving the selloff is the growing scrutiny of Nvidia's deepening role as financier and guarantor for the entire AI ecosystem.

Nvidia's five-year credit default swaps surged 14 basis points to 82 on July 27—the largest single-day move since the contract listed—as investors repriced the credit risk embedded in the company's circular AI financing structure . The CDS spike erased $250 billion from Nvidia's market capitalization in a single session .

The trigger was Nvidia's own announcements: a $500 billion-plus AI infrastructure partnership with South Korea's SK Group and discussions to provide up to $250 billion in financing guarantees for OpenAI to lease a 10-gigawatt data center in Ohio, with total Nvidia exposure to a single customer potentially reaching $600 billion—nearly three times Nvidia's annual revenue .

"We have reached the stage of this cycle where Nvidia must guarantee two-thirds of the cost of chips it sells to data centers," said Jim Chanos, founder of Chanos & Co. "This is not a demand problem — it is a financing structure problem" .

The circular structure—Nvidia guarantees financing, SoftBank builds the data center, OpenAI leases the compute, OpenAI uses Nvidia-guaranteed money to buy Nvidia chips—means risk is concentrated on a single credit chain. "If any link breaks, all four dominoes fall together," one analysis noted .

## The Numbers Tell the Story

| Region | Index/Stock | Decline |

|--------|------------|--------|

| **South Korea** | KOSPI | **-10.8%** |

| | SK Hynix | **-14.7%** |

| | Samsung Electronics | **-13.4%** |

| **Japan** | Nikkei 225 | **-4%** |

| | Kioxia Holdings | **-18%** |

| **Taiwan** | Taiex | **-4.7%** |

| | TSMC | **-3%** |

| **Europe** | ASML | **-8%+** (Monday) |

| **U.S.** | PHLX Semiconductor | **-4%+** |

| | Nvidia | **-5%** (Monday) |

| | AMD | **-7%** |

| | Micron | **-5%+** |

| | SK Hynix ADR | **-5%+** |

## What the Experts Are Saying

"There are a lot of people under the impression over the last couple of months that these stocks only go up. And if they borrowed money to buy the positions, then they (could be) getting called out of them," said Walter Todd, chief investment officer at Greenwood Capital .

Owen Lamont, senior vice president at Acadian Asset Management, told CNBC: "Right now we're facing an incredible uncertainty" about the AI investment cycle . He also noted that leveraged exchange-traded products could be adding to market swings.

Sundeep Gantori, Standard Chartered's chief investment officer for equities, tied the sell-off to a broader deterioration in sentiment toward semiconductor stocks after recent media reports highlighted China's ambitions in memory chips and lithography equipment .

## Is This a Correction or a Crash?

The answer depends on who you ask.

The bull case: This is a "healthy reset" for a market that had become overextended. The sector remains up more than 60% for the year, and the long-term AI infrastructure buildout remains intact . Some options traders see a short-term bottom forming .

The bear case: The selloff reflects structural risks that have been building for months: hyperscaler debt has surpassed that of the energy sector, with Amazon, Google, Nvidia, Meta, Oracle, and SpaceX issuing $182 billion in investment-grade bonds since the start of 2026—a 1,300% increase from the same period a year earlier . SoftBank's $40 billion bridge loan for OpenAI matures in March 2027, and the AI IPO pipeline may be strained .

As Jefferies' Wood put it: "The growing narrative around AI ... also faces growing credit risks" .

## Conclusion

The global chip rout is more than just profit-taking. It's a repricing of the AI trade's underlying assumptions—the sustainability of spending, the threat of Chinese competition, and the concentration of credit risk in a circular financing chain.

Whether this is a temporary reset or the beginning of a more significant correction depends on answers to three questions:

1. Can hyperscalers generate returns on their AI investments fast enough to justify the spending?

2. Can Nvidia's circular financing structure withstand scrutiny without triggering a credit event?

3. How quickly will Chinese competitors close the technology gap?

For now, investors are voting with their feet. And the answer, at least for today, is that the chip trade has gotten too hot.

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## Disclaimer

**IMPORTANT:** This article is for informational and educational purposes only and does not constitute financial, investment, or trading advice. The information contained herein is based on publicly available sources and reflects the author's understanding as of the publication date. Market conditions, stock prices, and economic data are subject to rapid change. Past performance is not indicative of future results. You should consult with a qualified financial advisor before making any investment decisions.