Chip stocks crater as AI sell-off triggers trading halts and 30-year monthly lows in Seoul

The AI stock sell-off reached a fever pitch on Tuesday, driving South Korea's benchmark Kospi index into a tailspin sharp enough to trigger an automatic trading halt. The index slumped by 8% in morning trading, forcing a 20-minute pause, and eventually closed 10.8% lower, according to the BBC. The Guardian reports that the Kospi touched its lowest level in three months, as Samsung Electronics and SK Hynix both fell by more than 10%.

The rout didn't stay contained in Asia. US chip stocks extended their recent lackluster performance on the same day, with Yahoo Finance noting that shares of AI chipmakers continued to slide on Friday, resuming a weeks-long slump. The Nasdaq 100 briefly dipped into correction territory ahead of a wave of Big Tech earnings reports, as reported by the Financial Times.

Trading halts are rare circuit-breaker mechanisms designed to stem panic selling, and their activation underscored the sheer velocity of the exodus. The Kospi is now on track for its worst month in over 30 years, according to Uk.finance.yahoo. The volatility bled directly into US pre-market trading, dragging down names like Nvidia and AMD before the opening bell.

Samsung Electronics lit the fuse for this latest leg down. CNBC reports that investors dumped semiconductor stocks after Samsung's quarterly results failed to meet Wall Street's lofty artificial intelligence demand expectations. The company's profit actually surpassed both Nvidia and Apple, and it projected an 1,800% jump in operating profit, yet shares dropped 8% immediately. The stock had run up 145% prior to the report, setting a bar that even historic profit growth couldn't clear.

Taiwan Semiconductor Manufacturing Co. added fuel to the fire. Yahoo Finance notes that the selloff followed an earnings report issued by TSMC on Thursday afternoon, which apparently didn't reassure investors already questioning the sustainability of AI capital expenditure. The results became the latest signal that the AI hardware boom might be priced to perfection, leaving no room for even slight disappointments.

Investors are recalibrating their expectations around the massive borrowing that AI companies have taken on to fund datacentre expansion plans, The Guardian reports. The concern is shifting from whether AI demand exists to whether the returns will justify the staggering upfront costs, and Samsung's results crystallized those doubts.

Beneath the surface of the tech rout, some analysts see a liquidity crunch rather than a fundamental collapse in AI demand. Investing.com suggests that the real story may be liquidity, as hedge funds dumped chip stocks for a fourth straight week. The rotation out of crowded AI winners is accelerating, and the selling is feeding on itself as positions unwind.

Bloomberg reports that after piling into chip stocks and so-called AI winners, investors are now rushing to cut this exposure and rebalance portfolios. The dramatic reversal in the AI trade looks overdone to some observers, but the momentum is undeniable. The selloff has elements of panic, as Uk.finance.yahoo quotes market participants saying investors are grasping for a reason behind the recent weakness.

Reuters confirms that hedge funds have been reducing their chip exposure consistently for weeks. This isn't a one-day event but a sustained rotation that has gained velocity. The circular nature of AI funding, where AI companies invest in chipmakers whose products enable AI services, is also drawing scrutiny, as Bloomberg notes in a separate analysis.

The selloff is forcing a reckoning on Wall Street about whether the AI trade has become a bubble. Investopedia reports that some stock-market experts are not yet worried, suggesting the pullback is a healthy correction in a long-term growth story. The underlying demand for AI compute remains real, and the companies driving it are generating actual revenue, not just hype.

But the counterargument is gaining traction. The WSJ notes that Korean stocks tumbled on doubts over AI, leading Asian equities lower. The doubts center on whether the enormous capital expenditure cycle can sustain itself without a proportionate return on investment. AI companies are borrowing heavily to build out datacentres, and if the revenue doesn't materialize on schedule, the debt becomes a problem.

The selloff is also exposing the interconnectedness of the AI supply chain. When South Korean memory chip makers fall, US GPU designers feel the shockwave, and vice versa. The global nature of the semiconductor industry means that regional panic can cascade through markets in hours, as this week demonstrated.

The immediate question is whether the selling exhausts itself or accelerates further. The Nasdaq 100 briefly entering correction territory sets a technical precedent that could trigger more algorithmic selling. Big Tech earnings over the coming days will be a critical test of whether the AI spending narrative can be defended by the companies writing the checks.

Investing.com's liquidity analysis suggests that once the forced selling by hedge funds subsides, the fundamentals could reassert themselves. But the timing is uncertain, and the damage to investor confidence has already been done. The Kospi's partial rebound to close 6% in the red, as reported by Investing.com, shows that dip buyers are active, but they haven't overwhelmed the sellers.

For the AI industry, the market turmoil is a warning shot. It signals that investors are no longer willing to fund growth at any price, and that the path from AI investment to AI profit needs to become clearer. The selloff doesn't mean the AI trade is over, but it does mean the era of easy money in chip stocks has taken a serious hit.