Chip Rout Deepens as Rate Fears Collide With AI Funding Woes

(Bloomberg) -- A rout in global technology hardware stocks extended Thursday, as Asian chipmakers followed US peers lower on worries over Federal Reserve interest rate hikes and AI funding difficulties.

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Top memory makers Samsung Electronics Co. and SK Hynix Inc. slid more than 6% each, sending the South Korean benchmark Kospi down as much as 6.5%. Japan's Nikkei 225 dropped more than 3%, with semiconductor-related shares including Ibiden Co. and Kioxia Holdings Corp. among the worst performers.

A closely watched US gauge of semiconductor stocks has erased $1.6 trillion in market value in a six-day losing streak, as concerns mount over higher interest rates, stretched valuations and the huge costs of building AI infrastructure. Strong earnings reports from Samsung and ASML Holding NV have failed to calm investors.

"Investor sentiment is weak, and fatigue has been building," said Jo Hyunik, an investment division manager at Seoul-based Iroom Investment Advisors. "I expect this volatile, flow-driven market to persist until there is greater clarity on US rates and the midterm elections," he added.

Worries heightened after data Wednesday showed US consumer prices advanced in September at the fastest clip in five months, spurring bets on more aggressive Fed tightening. Adding to jitters over the AI trade, CoreWeave Inc. shares plunged as its bonds fell to levels that typically indicate distress, leading investors to again question the sustainability of large spending on AI infrastructure.

The Kospi is poised for its seventh-straight day of declines, its longest losing streak since September 2024. It's now trading at its lowest level since the end of July.

"The South Korean stock market's valuation has dropped to an extreme level now," said Kang DaeKwun, chief executive officer at Life Asset Management. While any pullback from the current level can be considered as an entry point, investors must make sure that problems over tech funding are resolved, he added.

The next key event to watch for Asian chip stocks will be earnings due later Thursday from Taiwan Semiconductor Manufacturing Co. Taiwanese tech stocks have held up better than Korean peers in recent weeks, with concerns on the longevity of the memory cycle weighing heavily on Samsung and SK Hynix following big gains this year.