Who would be an investor in South Korea right now? “Despair and frustration” spread again on Wednesday as the chip-heavy Kospi index “cratered” during another “hectic session” that triggered a second successive official circuit-breaker, reported Bloomberg.
The catalyst was disappointing earnings from local semiconductor giant SK Hynix but, given “already jittery sentiment” around the AI boom, it could almost have been anything. The oncebooming Kospi has now lost more than 33% of its value in a month.
‘Demand destruction’
“The chips are down,” said Bryce Elder in the FT – especially in the red-hot memory sector. Some have pinned the “chip dip”, which has also hit Wall Street with force, on the IPO of Chinese challenger CXMT; others on reports that a stateowned Chinese company is beginning mass production of “immersion deep-ultra lithography machines” – advanced chip manufacturing tools over which the West (especially the Dutch giant ASML) currently enjoys a monopoly. Still, the more obvious concern is “demand destruction”, in what has always been a volatile and highly cyclical sector. Voracious demand from America’s big AI hyperscalers has sent chip prices sky-high. “All that’s needed to wreck 2027 sales expectations is for this cycle to turn from virtuous to vicious. Plus ça change…”
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Could China do for chips what it has already done for cars? That’s the fear on the Nasdaq, said Eliot Brown in The Wall Street Journal. As Elon Musk recently told The Economist, Chinese manufacturers are “closer than most people realise to solving the lithography problem”. Chinese companies have been restricted from buying the cutting-edge machines – which is why they are “a step behind the US in advanced chipmaking”.
‘Nvidia - the central bank of the AI economy’
Yet what’s particularly concerning about the plummeting shares of chipmakers, said DealBook in The New York Times, is that the rout coincides with a broader crisis of confidence on Wall Street about AI-related corporate debt and “circular” financial arrangements. That was rammed home when it emerged that chip giant Nvidia – increasingly “the central bank of the AI economy” – is brokering a $250bn guarantee for OpenAI’s immense Ohio campus. “Throughout history, almost every generational infrastructure leap has relied on hardware titans to co-sign their buyers’ credit.”
But this has also led to devastating “debt crashes”. The chief winner of the current turmoil is Apple, said the FT. It has reclaimed its crown as the world’s most valuable company, with a $5trn valuation, because it is seen as a relative “haven”. The same is true of the FTSE 100, which has hit an all-time high as an “anti-tech” index. Swings and roundabouts.
